FASB moves to simplify share-based payment accounting

PCC concerns played a role in the revamp.

A new FASB standard aims to simplify the accounting for share-based payment transactions for public and private companies.

Accounting Standards Update (ASU) No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, affects all organizations that issue share-based payment awards to their employees.

The standard addresses topics including:

  • Income tax consequences.
  • Classification of awards as either equity or liabilities.
  • Classification on the statement of cash flows.

The Private Company Council (PCC) worked with FASB on the issues addressed in the updated standard. In addition to rules that affect all organizations that issue share-based payments, the ASU contains provisions that simplify two areas specific to private companies:

  • Practical expedient for expected term: In lieu of estimating the period of time that a share-based award will be outstanding, private companies will be able to apply a practical expedient to estimate the expected term for all awards with performance or service conditions that have certain characteristics.
  • Intrinsic value: Private companies will be able to make a one-time election to switch from measuring all liability-classified awards at fair value to measuring them at intrinsic value. Previously, private companies were provided an option to measure all liability-classified awards at intrinsic value at initial adoption of ASC Topic 718, but some private companies were not aware of that option.

For public companies, the standard takes effect for annual periods beginning after Dec. 15, 2016, and interim periods within those annual periods. For private companies, the amendments take effect for annual periods beginning after Dec. 15, 2017, and interim periods within annual periods beginning after Dec. 15, 2018. Early adoption is permitted for any organization in any interim or annual period.

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