Post Implementation Review Concludes Share-Based Payment Standard Achieves
FASB Issues Response Letter, Continues Outreach To Identify
Norwalk, CT, August 19, 2014—A 2004
accounting standard that addresses companies´ share-based payment transactions
achieves its purpose and provides useful information to users of financial
That was the central conclusion of the post-implementation
review (PIR) of Financial Accounting Standards Board (FASB) Statement No.
123(R), Share-Based Payment. Statement 123R focuses on accounting for
transactions in which a public or private company exchanges its equity
instruments for employee services. It also addresses transactions in which a
company incurs liabilities in exchange for goods or services that are based on
the fair value of its equity instruments, or that may be settled by the issuance
of those equity instruments.
"The post-implementation review report on
Statement 123(R) identified many positive aspects of the share-based payment
standard, including its usefulness to investors," said FASB Chairman Russell G. Golden. "Private company stakeholders
told the PIR team that the standard is sometimes difficult to understand and
costly to apply. This feedback is consistent with input the FASB recently
received from stakeholders through outreach for the FASB´s Simplification
Initiative and for pre-agenda research for the Private Company Council (PCC).
"Although we do not plan
to undertake a comprehensive review of the standard, we will continue our
outreach to stakeholders to identify improvements to account for share-based
payment transactions. The FASB staff will bring the results of the outreach to
the Board and the PCC later this year for discussion," Golden said.
PIR team received input from investors and other financial statement users, as
well as from preparers, auditors, and academics. Based on its research, the
review team concluded:
The PIR team had no significant standard-setting
process recommendations as a result of the review.
- Statement 123(R) adequately resolved the issues underlying its need. In
- Addressed the concerns of users and others that companies were not
recognizing in 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, and
- Converged, to a large extent, the accounting for share-based payment
transactions with International Financial Reporting Standard (IFRS) 2,
- The standard provides investors with useful information—as many investors
factor both the recognized compensation cost associated with share-based
payment awards in earnings and other information about share-based payments
into their analyses. For example, investors use the information to analyze the
nature of a company´s share-based payment awards and projections of a
company´s future earnings and cash flows.
- For public companies, Statement 123(R) is generally understandable, can be
applied as intended, and results in reliable information. However, the
standard is often more difficult for private companies to understand and apply
as intended, primarily because of the complexity of the financial instruments
they use for share-based payment awards and their lack of internal
- Ongoing costs incurred by public companies to comply with Statement 123(R)
are not significant when considered in totality. Private companies incur
significant ongoing costs when measuring share-based payment awards,
estimating forfeiture rates, and determining whether a share-based payment
award should be classified as equity or a liability. Private companies incur
significant costs in those areas because of the complexity of the awards
granted and because they typically lack the internal expertise to comply with
Statement 123(R)´s requirements.
- While the changes made to financial and operating practices as a result of
Statement 123(R) could be considered significant, these changes were
consistent with expectations. No unexpected significant changes to financial
reporting or operating practices resulted from the standard.
- There were not any significant unanticipated consequences as a result of
The review of
Statement 123(R) was undertaken by an independent team of the Financial
Accounting Foundation (FAF), the parent organization of the FASB and the
Governmental Accounting Standards Board (GASB). The team´s formal report is
The FASB´s response letter to the report is available here.
With the completion of the FAS 123(R) review, the
PIR team will begin their review of FASB Statement No. 160, Noncontrolling
Interests in Consolidated Financial Statements, in a few weeks.
Stakeholders who would like the opportunity to participate in upcoming
PIRs should register
For more information on the PIR process, visit the FAF
About the Financial Accounting Foundation
The FAF is responsible for the oversight, administration, and
finances of both the Financial Accounting Standards Board (FASB) and its
counterpart for state and local government, the Governmental Accounting
Standards Board (GASB). The Foundation is also responsible for selecting the
members of both Boards and their respective Advisory Councils.
About the Financial Accounting Standards
Since 1973, the Financial Accounting Standards Board has
been the designated organization in the private sector for establishing
standards of financial accounting and reporting. Those standards govern the
preparation of financial reports and are officially recognized as authoritative
by the Securities and Exchange Commission and the American Institute of
Certified Public Accountants. Such standards are essential to the efficient
functioning of the economy because investors, creditors, auditors, and others
rely on credible, transparent, and comparable financial information. For more
information about the FASB, visit our website at http://www.fasb.org/.