Changes to Accounting for Share‐Based Payment Arrangements

AuthorPaul Munter,Oscar J. Holzmann
Published date01 January 2017
Date01 January 2017
© 2017 Wiley Periodicals, Inc.
Published online in Wiley Online Library (
DOI 10.1002/jcaf.22242
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
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
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

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