What are the key differences between IFRS 2 and ASC 718 for share-based compensation accounting?

IFRS 2 (Share-based Payment) and ASC 718 (Compensation — Stock Compensation) share the same fundamental principle — recognize compensation expense at fair value — but diverge in classification, measurement, and forfeiture treatment.\n\nClassification Differences:\n\n`mermaid\ngraph TD\n A[\"Share-Based Award\"] --> B{\"Settlement Method\"}\n B -->|\"Equity Settled\"| C[\"Both: Fair value at grant date
No remeasurement\"]\n B -->|\"Cash Settled\"| D[\"Both: Fair value remeasured
each period (liability)\"]\n B -->|\"Choice of settlement\"| E{\"Who has the choice?\"}\n E -->|\"Employee chooses\"| F[\"IFRS 2: Compound instrument
Split debt + equity\"]\n E -->|\"Employee chooses\"| G[\"ASC 718: Liability
(entire award)\"]\n E -->|\"Employer chooses\"| H[\"IFRS 2: Presumed equity
unless pattern of cash\"]\n E -->|\"Employer chooses\"| I[\"ASC 718: Equity
(if equity criteria met)\"]\n`\n\nForfeiture Treatment:\n\nThis is a major divergence. Under ASC 718, companies may either estimate forfeitures upfront or recognize them as they occur (an election). Under IFRS 2, entities must estimate the number of awards expected to vest and revise that estimate each period — there is no option to ignore forfeitures until they happen.\n\nWorked Example:\n\nHarborLight Industries grants 10,000 stock options on January 1, 2026. Fair value per option: $8.50. Vesting period: 3 years. Expected forfeiture rate: 15%.\n\nIFRS 2 Approach (estimate forfeitures):\n- Expected to vest: 10,000 x 85% = 8,500 options\n- Total expense: 8,500 x $8.50 = $72,250\n- Year 1 expense: $72,250 / 3 = $24,083\n\nIf actual forfeitures in Year 1 are only 5%, IFRS 2 requires a cumulative adjustment:\n- Revised expected to vest: 10,000 x 95% = 9,500\n- Revised total expense: 9,500 x $8.50 = $80,750\n- Cumulative expense through Year 1: $80,750 / 3 = $26,917\n- Year 1 recognized: $26,917\n\nASC 718 Approach (if forfeitures recognized as they occur):\n- Year 1 expense: (10,000 x $8.50) / 3 = $28,333\n- Less actual forfeitures: 500 x $8.50 / 3 = $1,417\n- Year 1 expense: $26,917 (similar outcome but different mechanics)\n\nOther Key Divergences:\n\n| Feature | IFRS 2 | ASC 718 |\n|---|---|---|\n| Measurement date | Grant date | Grant date |\n| Modifications (increase in FV) | Recognize incremental value | Recognize incremental value |\n| Modifications (decrease in FV) | Continue original expense | Continue original expense |\n| Group plans | Parent or subsidiary can recognize | Typically at subsidiary level |\n| Non-employee awards | Same as employees | Same as employees (post ASU 2018-07) |\n\nMaster the nuances of share-based payment standards in our CFA FRA course.