FASB to Revise, Finalize Proposal on Share-Based Payment

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By Denise Lugo

Nov. 23 — Rules proposed earlier this year to simplify—in targeted areas—the accounting requirements for employee share-based payment transactions will be finalized with some revisions, the Financial Accounting Standards Board said Nov. 23.

Use Earnings Approach

Among key decisions affirmed by FASB is the requirement that companies record excess benefits or deficiencies in the income statement, referred to as an earnings approach. As a refinement, FASB said those would be discrete items in the period in which they take place.

Under current generally accepted accounting principles (GAAP), a company must determine for each award whether the difference between the deduction for tax purposes and the compensation cost recognized for financial reporting purposes results in either an excess tax benefit or a tax deficiency.

Excess tax benefits are recognized in additional paid-in capital (APIC), while tax deficiencies are recognized either as an offset to accumulated excess tax benefits, if any, or in the income statement.

In order to apply current GAAP, companies are required to track historical excess tax benefit pools—APIC pools—which some have said can be complex.

No Need to Track APIC Pools

FASB's decision would remove a lot of complexities from Topic 740, Income Taxes, according to FASB's Nov. 23 discussions. A company, for example, won't have to estimate excess tax benefits when estimating annual effective tax rate, because they would account for them in the period in which they occur. In addition, the board's decision will eliminate the need for a company to track APIC pools.

However, at least one negative impact is expected from the board's tentative affirmation, the discussions indicated. In their feedback to the board's proposal, some companies expressed concerns that the income-statement approach will create some volatility in earnings.


The proposal, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, was issued in June.

FASB received 69 comment letters and did additional outreach with financial statement users, according to the discussions.

The board decided against including in its final decisions its proposed viewpoint addressing classification of awards with repurchase features. Companies will be allowed to continue following current GAAP, FASB said.

Private-Company Exception

In terms of other revisions, a slight tweak was made to a proposed practical expedient—an accounting exception—for private companies related to the expected term for all awards with performance or service conditions that meet certain criteria.

In addition, FASB said it would modify transition requirements for classification of excess tax benefits on the statement of cash flows to allow more flexibility in its application. Companies can either apply it retrospectively or prospectively, FASB agreed.

The board affirmed its viewpoint on the following issues as proposed:

• classification of excess tax benefits on the statement of cash flows;

• forfeitures;

• minimum statutory tax withholding;

• classification of employee taxes paid on the statement of cash flows when an employer withholds shares for tax withholding purposes;

• one-time election for private companies related to intrinsic value; and

• transition requirements and disclosures.


Effective Dates

FASB said the guidance will be effective for public companies' annual periods beginning after Dec. 15, 2016, including interim periods.

For all other entities, it will be effective for annual periods after Dec. 15, 2017, and interim periods within annual periods after Dec. 15, 2018.

Earlier adoption will be permitted for both public and nonpublic entities in an interim or annual reporting period, the board agreed.

To contact the reporter on this story: Denise Lugo in Norwalk, Conn., at dlugo@bna.com

To contact the editor responsible for this story: Steven Marcy at smarcy@bna.com

For a copy of the board's handout, which includes its proposed viewpoint on affirmations, go to http://src.bna.com/bdR.

For a general discussion on share-based payment, see 5109-3rd, Accounting for Share-Based Compensation.


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