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The Financial Accounting Standards Board (FASB) has begun a project to make improvements to the accounting for share-based payments. The project is part of the FASB’s Simplification Initiative in which it is improving narrow-scope issues within U.S. GAAP where cost and complexity can be reduced while maintaining or improving the usefulness of information provided in the financial statements.
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Mayer HoffMan Mccann P.c. – an IndePendenT cPa fIrM
a publication of the Professional Standards Group
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2. The second decision made was to simplify the accounting for share-based payments with service conditions only. Under existing U.S. GAAP, forfeitures for such share-based payments must be estimated, with updates made to the estimate for each period. The FASB tentatively decided to add an alternative that would permit the forfeitures as they occur, thus permitting a simplified method that does not require a forfeiture estimate for qualifying awards.
3. The final decisions reached relate to the income tax accounting for share-based payments. The FASB decided that the income statement should present the excess tax benefits and tax deficiencies related to share-based payments and that they would eliminate the requirement that excess tax benefits be recognized only when realized. The latter change will simplify the accounting by removing the need to perform a second evaluation of whether the excess tax benefit has been realized and therefore simplify the income tax accounting. The final income tax related decision was to require that excess tax benefits be presented as an operating activity of the cash flow statement instead of a financing activity.
Additional Research
The FASB directed its staff to perform additional research in two areas. The first is to research practical expedients for private companies. This research, which we expect the Private Company Council (PCC) to provide input on, will include elections to simplifying
The Financial Accounting Standards Board (FASB) has begun a project to make improvements to the accounting for share-based payments. The project is part of the FASB’s Simplification Initiative in which it is improving narrow-scope issues within U.S. GAAP where cost and complexity can be reduced while maintaining or improving the usefulness of information provided in the financial statements.
Tentative Decisions Reached
The faSB has reached decisions on three topics that were identified to simplify the accounting for share-base payments as follows:
1. The FASB decided that liability classification will not be triggered when an entity repurchases shares from an employee and uses the cash owed to the employee to pay for an income tax withholding up to the maximum marginal statutory income tax rate. Under current U.S. GAAP, if an employer repurchases shares in excess of the minimum statutory income tax withholding the share-based compensation would be required to be treated as a liability. This change would simplify the accounting for share-based compensation for those companies that withhold income taxes for employees on share-based compensation plans.
october 2014
Simplifying Share-Based Payment Accounting
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The information in this MHM Messenger is a brief summary and may not include all the details relevant to your situation. Please contact your MHM auditor to further discuss the impact on your audit or audit report.
the accounting method and measurement of share-based awards. The second project is to consider the accounting for share-based payments for non-employees, including aligning the accounting with that for employee awards and the accounting for unresolved performance conditions.
Next Steps
As with other projects under the Simplification Initiative, we expect that the FASB will quickly issue exposure drafts for decisions that have been reached. We also expect the FASB will further discuss the research projects in a future meeting and make decisions in the near term.
For More Information
MHM’s Professional Standards Group will continue to monitor progress of these projects and others under the FASB’s Simplification Initiative.
If you have any specific questions, comments or concerns, please share them with Ernie Baugh or James Comito of MHM’s Professional Standards Group or your MHM service professional. You can reach Ernie at [email protected] or 423.870.0511 and James at [email protected] or 858.795.2029.
