FASB share-based payments standard challenges private companies

Although a review found that FASB’s share-based payments standard achieves its purpose, private company stakeholders told a post-implementation review team that the standard is sometimes difficult for them to understand and costly to apply.

After analyzing the results of the Financial Accounting Foundation review of Statement 123(R), Share-Based Payment, released Tuesday, FASB does not plan to perform its own comprehensive review of the standard.

But the private company concerns are consistent with feedback FASB received through outreach for its Simplification Initiative and for pre-agenda research performed for the Private Company Council. So FASB will seek more input on the subject.

“We will continue our outreach to stakeholders to identify improvements to account for share-based payment transactions,” FASB Chairman Russell Golden said in a news release. “The FASB staff will bring the results of the outreach to the board and the PCC later this year for discussion.”

After receiving input from financial statement users, preparers, auditors, and academics, the post-implementation review team found that Statement 123(R) adequately resolved the issues it was created to address when it was approved in 2004.

According to the review, the standard:

• Addressed concerns that companies were not recognizing in their earnings the cost of employee services received in exchange for share-based payment awards.
• Increased comparability and simplified accounting for share-based payment transactions by eliminating alternative accounting methods previously allowed.
• Converged to a large extent with IFRS 2, Share-Based Payment.

The review found that although public companies generally can understand and apply the standard, private companies have difficulty understanding and applying the standard because of the complexity of the financial instruments they use for share-based payment awards and their lack of internal expertise.

—Ken Tysiac (ktysiac@aicpa.org) is a JofA editorial director.