Changes to Accounting for Share‐Based Payment Arrangements

• Published date: 01 January 2017
• Date: 01 January 2017
• DOI: http://doi.org/10.1002/jcaf.22242

98

© 2017 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com).

DOI 10.1002/jcaf.22242

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FASB

Changes to Accounting for Share-Based

Payment Arrangements

Oscar J. Holzmann and Paul Munter

Accounting for share-based

payment arrangements fol-

lows two distinct models: one

for grants to employees and

one for grants to nonemploy-

ees. The requirements of ASC

Topic 718 are applicable to

employee grants and have been

in effect since 2005.1 Account-

ing for employee share-based

payment awards is based on

a grant-date fair value model

when the awards are equity

classified. Under that model,

equity-classified awards are

valued at the grant date, the

award is not revalued, and the

compensation cost is recog-

nized over the requisite service

period, which is usually the

vesting period of the award.

Awards granted to non-

employees are subject to the

requirements of ASC Subtopic

505-50.2 These requirements

came into effect for some enti-

ties as early as 1996. Unlike

the grant-date fair value model

used for awards to employ-

ees, nonemployee awards are

remeasured until the “per-

formance commitment date,”

which typically results in vari-

able accounting for awards to

nonemployees until the award

is settled.

In 2014, the Financial

Accounting Foundation com-

pleted its post-implementation

review (PIR) on the account-

ing for employee share-based

payment awards.3 The PIR

concluded that the accounting

model for employee awards:

• Adequately resolved the

issues that the standard

was intended to address

(accounting for employee

share-based payments).

• Addressed the concerns

of users that entities were

not recognizing in earnings

the cost of employee ser-

vices received in exchange

for share-based payment

awards.

• Increased comparability

and simplified accounting

for share-based payment

transactions by eliminating

the choice between recog-

nition and disclosure only

that existed previously.

• Converged, to a large

extent, the accounting

for share-based payment

transactions under U.S.

generally accepted account-

ing principles (GAAP) with

the accounting under Inter-

national Financial Report-

ing Standards (IFRS).4

The PIR also concluded

that the application of ASC

Topic 718 generally results in

decision-useful information

being provided to financial

statement users. Additionally,

the PIR concluded that the

requirements of ASC Topic 718

generally are understandable

and can be applied by financial

statement preparers of public

companies as intended, which

results in reliable information

being presented in the financial

statements.

The PIR found, however,

that financial statement pre-

parers of private companies

often had more difficulty in

understanding and applying

the requirements as intended

because of the complexity of

the financial instruments they

use for their share-based pay-

ment awards and their lack of

internal expertise. Further, the

PIR found that for many public

and private companies, there