News Release 03/30/16
FASB ISSUES NEW GUIDANCE
ON EMPLOYEE SHARE-BASED PAYMENT ACCOUNTING
Norwalk, CT, March 30, 2016—The Financial Accounting
Standards Board (FASB) today issued an Accounting Standards Update (ASU)
intended to improve the accounting for employee share-based payments.
The ASU affects all organizations that issue share-based payment awards
to their employees.
The ASU, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, simplifies several aspects of the accounting for share-based payment award transactions, including:
The ASU also simplifies two areas specific to private companies:
- The income tax consequences
- Classification of awards as either equity or liabilities, and
- Classification on the statement of cash flows.
"Both public and private company stakeholders identified a few aspects
of accounting for employee share-based awards that are unnecessarily
complex," said FASB Chair Russell G. Golden. "Based on input from those
stakeholders—including the Private Company Council—the FASB has issued a
standard that we believe will simplify the accounting while maintaining
the usefulness of information provided to investors."
- Practical Expedient for Expected Term: In lieu
of estimating the period of time that a share-based award will be
outstanding, private companies can now 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 can now 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, but some private
companies were unaware of that option.
Accounting for employee share-based awards was identified by the Private
Company Council (PCC) as an area of concern among private company
stakeholders. The PCC worked with the FASB to discuss and analyze the
issues that private companies have encountered in this area when
applying the standard. The PCC also asked the FASB staff to conduct
outreach with users as a part of the FASB's pre-agenda research on the
Concurrently, the FASB received feedback from stakeholders through its Simplification Initiative suggesting that the accounting for employee share-based awards could be simplified.
The FASB also considered the conclusions in the Financial Accounting Foundation's (FAF) Post-Implementation Review (PIR) Report
on Statement 123(R), Share-Based Payment. Though the report concluded
that the prior standard achieved its purpose, it noted that certain
areas within Statement 123(R) may be costly and difficult to apply.
Based on this collective input, the FASB subsequently added the project to its agenda.
For public companies, the amendments in this ASU are effective for
annual periods beginning after December 15, 2016, and interim periods
within those annual periods. For private companies, the amendments are
effective for annual periods beginning after December 15, 2017, and
interim periods within annual periods beginning after December 15, 2018.
Early adoption is permitted for any organization in any interim or
The ASU is available at www.fasb.org.
About the Financial Accounting Standards Board
Established in 1973, the FASB is the independent, private-sector,
not-for-profit organization based in Norwalk, Connecticut, that
establishes financial accounting and reporting standards for public and
private companies and not-for-profit organizations that follow Generally
Accepted Accounting Principles (GAAP). The FASB is recognized by the
Securities and Exchange Commission as the designated accounting standard
setter for public companies. FASB standards are recognized as
authoritative by many other organizations, including state Boards of
Accountancy and the American Institute of CPAs (AICPA). The FASB
develops and issues financial accounting standards through a transparent
and inclusive process intended to promote financial reporting that
provides useful information to investors and others who use financial
reports. The Financial Accounting Foundation (FAF) supports and oversees
the FASB. For more information, visit www.fasb.org.