Making Sense of Forfeiture Rates

A particularly challenging topic within ASC 718 is the required use of a forfeiture rate. Numerous techniques exist for first deriving an appropriate forfeiture rate and then applying it within an amortization model. Unfortunately, not all techniques are created equal. Some fail to meet the principles of ASC 718 while others do meet the principles, but require manual intervention/maintenance, in order to ensure they produce consistently reliable outcomes on the final expense calculations.

This Issue Brief is intended to assist companies, auditors, and regulators in understanding important best practices related to both the upfront derivation of a forfeiture rate and downstream application of the rate within the amortization process.

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