IFRS 2 vs ASC 718: share-based payment

A group with employees in Europe and the US can grant the same share options to everyone and still report different expenses and tax numbers depending on the framework. This guide compares IFRS 2 with ASC 718 side by side, works through the deferred tax on an option grant, and covers graded vesting, forfeitures, payroll taxes, modifications and private company practical expedients.

By Hamza Fida, Chartered Accountant (ICAP). Reviewed by Mirza Fahad Baig, Chartered Accountant (ICAP). Updated . 6 minute read.

Short answer

IFRS 2 vs ASC 718 share the same foundation: equity-settled awards are measured at grant-date fair value and recognized over the service period, and cash-settled awards are remeasured until settlement. The differences change the timing and volatility of the expense. IFRS 2 requires awards that vest in tranches to be expensed tranche by tranche, while ASC 718 allows straight-line recognition for awards with only a service condition. IFRS 2 requires forfeitures to be estimated; ASC 718 lets companies account for them as they occur. Deferred tax differs most: IFRS measures the deferred tax asset on the tax deduction expected at the current share price, sending any excess over the cost to equity, while US GAAP measures it on the cost recognized and puts all excess tax benefits and shortfalls through the income statement when they arise. Payroll taxes, some modifications, and practical expedients for private companies under US GAAP also differ. In this guide's example, the same options give a deferred tax asset of $225,000 under IFRS and $150,000 under US GAAP.

At a glance

Measurement
Grant-date fair value
Graded vesting
Tranches under IFRS
Forfeitures
Estimate under IFRS
Tax windfalls
Equity under IFRS
Payroll taxes
Accrued under IFRS
Private companies
Shortcuts in US GAAP
IFRS 2 vs ASC 718: share-based paymentMeasurement: Grant-date fair value; Graded vesting: Tranches under IFRS; Forfeitures: Estimate under IFRS; Tax windfalls: Equity under IFRS; Payroll taxes: Accrued under IFRS; Private companies: Shortcuts in US GAAP.KEY FACTS AT A GLANCEIFRS 2 vs ASC 718: share-based paymentMeasurementGrant-date fair valueGraded vestingTranches under IFRSForfeituresEstimate under IFRSTax windfallsEquity under IFRSPayroll taxesAccrued under IFRSPrivate companiesShortcuts in US GAAPTax BakersIFRS 2 vs ASC 718: share-based paymentMeasurement: Grant-date fair value; Graded vesting: Tranches under IFRS; Forfeitures: Estimate under IFRS; Tax windfalls: Equity under IFRS; Payroll taxes: Accrued under IFRS; Private companies: Shortcuts in US GAAP.KEY FACTS AT A GLANCEIFRS 2 vs ASC 718: share-basedpaymentMeasurementGrant-date fair valueGraded vestingTranches under IFRSForfeituresEstimate under IFRSTax windfallsEquity under IFRSPayroll taxesAccrued under IFRSPrivate companiesShortcuts in US GAAPTax Bakers
Key facts at a glance, as set out in this guide.

What do IFRS 2 and ASC 718 have in common?

Both measure equity-settled awards at the grant-date fair value of the instruments, using an option pricing model where there is no market price; both recognize the cost over the period in which the employee provides service; both build market conditions into fair value and true up for service and non-market performance conditions; and both remeasure cash-settled awards at each reporting date. See IFRS 2 share-based payment and ASC 718 stock compensation.

IFRS 2 vs ASC 718: what are the differences?

IFRS 2 vs ASC 718 at a glanceIFRS 2 vs ASC 718 at a glanceTOPICIFRSUS GAAPStraight-line for graded awardsNot allowedAllowedForfeitures as they occurNot allowedAllowedTax windfalls in profit or lossNot allowedRequiredPayroll taxes over vestingRequiredNot allowedPrivate company expedientsNot allowedAllowed
Same model, different timing: the gaps are in attribution, tax and payroll taxes.
AreaIFRS 2 and IAS 12ASC 718 and ASC 740
Graded vesting, service condition onlyEach tranche is a separate award, so the expense is front-loadedPolicy choice: straight-line over the whole award or tranche by tranche
ForfeituresMust be estimated and trued upPolicy choice: estimate, or recognize when they occur
Deferred tax assetBased on the deduction expected at the current share price; excess over cost goes to equityBased on the cost recognized; no remeasurement for share price changes
Excess tax benefits and shortfallsExcess over the cumulative cost recognized in equityAll in income tax expense when they arise
Employer payroll taxes on awardsGenerally accrued as a liability over the vesting periodRecognized when the triggering event occurs, usually vesting or exercise
Improbable-to-probable modificationOriginal grant-date fair value plus any incremental valueFair value at the modification date replaces the original
Private companiesNo practical expedientsIntrinsic value for liability awards, simplified expected term, industry volatility, current price input

An example: deferred tax on share options

A company grants options with a total grant-date fair value of $1,000,000. By the year end, 60% of the service has been provided, so the cumulative cost is $600,000. The tax deduction will equal the options' intrinsic value at exercise; at the year end, the intrinsic value of all the options is $1,500,000. The tax rate is 25%.

IFRS 2 and IAS 12ASC 718 and ASC 740
Basis for the deferred tax assetExpected deduction for service so far: 1,500,000 x 60% = 900,000Cumulative cost recognized: 600,000
Deferred tax asset at 25%225,000150,000
Of which in profit or loss150,000150,000
Of which directly in equity75,0000

Under IFRS the asset moves with the share price every period, with the part above the cost-based amount kept out of profit. Under US GAAP the asset stays at the cost-based amount, and once all the service is provided, the difference between the actual deduction and the cost-based asset, $125,000 if the share price holds until exercise, hits income tax expense in the period the options are exercised, which can make the effective tax rate swing with the share price. See deferred tax under IAS 12 and deferred taxes under ASC 740.

How much does graded vesting matter?

For a four-year award vesting a quarter each year, tranche-by-tranche recognition charges more than half of the total cost in the first year, against a quarter under straight-line. Growing companies that grant every year therefore report a noticeably higher expense under IFRS than US peers using straight-line, though the total over the life of each award is the same. See stock compensation at technology companies. The share-based payment schedule (Excel) shows the two attribution methods side by side.

Are awards classified differently?

Mostly not, but there are edge cases. Under US GAAP, shares the employee can put back to the company within six months of vesting make the award a liability, and awards indexed to something other than a market, performance or service condition are liabilities. Under IFRS 2, awards where the company can choose cash or shares are equity unless it has a present obligation to pay cash, for example because of past practice. Both frameworks treat net settlement to cover the employee's withholding tax as equity.

Where to go next

See IFRS vs US GAAP key differences and earnings per share, where options enter diluted EPS under both frameworks. See IAS 33 vs ASC 260.

Keep going

Our free Excel models work through the examples in these guides, and the comparisons show where IFRS and US GAAP part ways. Every guide names the Chartered Accountant who wrote it and the one who reviewed it.

All IFRS vs US GAAP guides Free Excel models

Questions people ask

What is the main difference between IFRS 2 and ASC 718?

IFRS 2 requires tranche-by-tranche recognition for graded vesting and estimated forfeitures, while ASC 718 allows straight-line recognition for service-only awards and accounting for forfeitures as they occur.

How is deferred tax on share-based payments different under IFRS and US GAAP?

IFRS bases the deferred tax asset on the expected deduction at the current share price, with any excess over cost in equity; US GAAP bases it on the cost recognized and puts excess benefits and shortfalls in the income statement.

Are payroll taxes on stock awards accrued over the vesting period?

Under IFRS, generally yes. Under US GAAP, employer payroll taxes are recognized when the triggering event, usually vesting or exercise, occurs.

Can private companies use simpler share-based payment rules?

Under US GAAP, yes: nonpublic entities have practical expedients such as intrinsic value for liability awards and a simplified expected term. IFRS 2 has none.

Sources

The standards, updates and other documents this guide draws on.

  1. IFRS Foundation: IFRS 2 Share-based Payment
  2. FASB Accounting Standards Codification: Topic 718, Compensation, Stock Compensation
  3. FASB: ASU 2016-09, Improvements to Employee Share-Based Payment Accounting

Rules and fees change. If you are reading this long after October 26, 2026, confirm the figures with the source before you rely on them.

IFRS 2IFRS 2 share-based payment: equity-settled and cash-settledASC 718ASC 718 stock-based compensationTechnology and SaaSShare-based payment in tech companies

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This guide is general information. It is not tax or legal advice for your situation.