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FASB Releases Simplified Rules for Share-based Compensation

By:
Chris Gaetano
Published Date:
Mar 31, 2016
ChangesAheadSquareThe Financial Accounting Standards Board (FASB) has released new rules that are aimed at simplifying share-based payment transactions, according to the Journal of Accountancy. Part of the board's Simplification Initiative, the new standard was drafted in response to concerns from stakeholders that accounting for these types of transactions was too complicated. 

“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.”

Specifically, the new standard concerns the income tax consequences of share-based payment transactions, their classification as either equity or liabilities, and their classification on the statement of cash flows. 

The standard also allows private companies to apply a practical expedient to estimate the expected term for all awards with performance or service conditions with certain characteristics. It also allows private companies to make a one-time election to switch from measuring liability-classified awards at fair value to intrinsic value. While companies had been able to measure at intrinsic value before, some private companies were not aware of the option. 

The new standard is effective Dec. 15, 2016 for public companies, and, for private ones, 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.