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When an unvested grant lapses, the expense already recognised stays recognised. Treating it as a correction is what makes the rollforward stop closing.
An employee with a four-year grant leaves in month thirty. Two and a half years of expense has been recognised. Eighteen months has not.
Total compensation cost $450,000
Recognised through month 30 $281,250
Unrecognised, reversed $168,750
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Ties to total compensation cost $450,000
The arithmetic is not the interesting part. What matters is what you do to the thirty periods that already closed, and the answer is nothing.
The instinct is that the earlier periods were wrong. You recognised expense for an award that never vested, so surely those periods overstated compensation and should be corrected.
Follow that instinct and every departure becomes a retrospective adjustment across every period since the grant date. Do it for a normal year of attrition and the equity workbook stops being a schedule and becomes a rolling restatement, where no closed period is safe and no comparative is stable.
The other consequence is subtler and worse: once prior periods are being edited, the rollforward stops being able to close. Opening balance plus movements no longer equals closing balance, because the opening balance itself has changed since it was last reported.
Treat the forfeiture as what it is: an event that happened in month thirty, recorded in month thirty.
Opening balance prior periods, untouched
Expense for the period normal attribution
Forfeiture reversal the unvested portion, this period
Closing balance ties
Prior periods keep what they reported. The current period carries the reversal. The rollforward closes because every movement is dated and nothing behind the opening balance moves.
If your policy estimates forfeitures rather than taking them as they occur, the mechanics differ: expense is recognised net of an expected rate, and the estimate gets trued up as reality diverges from it.
That is a policy choice, made by your accountants, and it changes what the system has to hold. It does not change the structural rule. A change in estimate is still an event with a date, recorded in the period the estimate changed, with the prior periods left as they were reported.
What the system has to do either way is keep the estimate as a versioned input rather than a constant, so that "what rate were we using in Q2 last year" has an answer.
Three things, and they compound.
Reversals get netted into expense. The forfeiture is subtracted from the current month's expense rather than shown as its own movement. The net number is right and the rollforward has lost the ability to explain itself.
Partial vesting on departure. An acceleration, a negotiated extension of the exercise window, a partial vest at termination. Each is a variation that a formula did not anticipate, so it gets handled by editing cells, which is where prior periods start moving.
Reinstatement. A leaver returns, or a termination is reversed. Now the reversal itself needs reversing, and the workbook has no concept of undoing an event because it has no concept of events.
Grants and tranches as records. Vesting as a schedule. Departures, forfeitures, accelerations and modifications as dated events against a tranche. Expense as the output of applying the schedule and the events, rather than as a number somebody maintains.
Then the rollforward is not something you construct. It is a query over the events, and it closes because the same data produced both ends of it.
Not sure where your process sits?
Grant data to ledger, allocated by department, every month, without the re-key.