The FASB Simplifies the Accounting for Share‐Based Payments

Date01 May 2017
Published date01 May 2017
© 2017 Wiley Periodicals, Inc.
Published online in Wiley Online Library (
DOI 10.1002/jcaf.22275
The FASB Simplifies the Accounting
for Share-Based Payments
Nancy Nichols, Luis Betancourt, and Irana Scott
The Financial
Accounting Stan-
dards Board (FASB)
recently issued
Accounting Stan-
dards Update (ASU)
2016–9, Improve-
ments to Employee
Share Based Payment
Accounting, effective
for calendar-year
public business enti-
ties at the beginning
of 2017. The ASU is
part of the FASB’s
Simplification Ini-
tiative.1 In August
2014, the Financial
Accounting Founda-
tion published its
Post-Implementation Review
(PIR) of SFAS 123R, now
ASC 718, Compensation-
Stock Compensation. The
review concluded ASC 718
had effectively addressed user
concerns that under earlier
guidance companies were not
recognizing in net income the
compensation cost of share-
based payments. In addition,
the report concluded that
ASC 718 improved compara-
bility, simplified accounting
and largely converged GAAP
and International Financial
Reporting Standards for share-
based payment transactions.
However, the report, while not
recommending changes to ASC
718, did note a few areas of
difficulties in the application
and/or understanding of the
requirements in the guidance.
More specifically, the following
areas were cited as
Accounting for
additional paid-
in capital (APIC)
pools (public and
nonpublic entities)
Liability versus
equity classifica-
tion (public and
nonpublic entities)
Minimum tax
(public entities)
expected forfei-
tures (nonpublic
Measuring share-
based payment
awards (nonpub-
lic entities).
In addition to the PIR
report, the FASB received
feedback from the Private
Company Council and other
stakeholders who raised simi-
lar concerns. Consequently,
in October 2014 the FASB
added a project to its agenda
to improve the accounting
for employee share-based
In this article, the authors explain the FASB’s
recently issued simplifications to accounting for
share-based payments. The areas of simplification
include accounting for income taxes and award
forfeitures and providing flexibility in statutory
tax rates to meet withholding requirements. The
authors provide examples of the revised account-
ing entries and examine the impact of the change
in accounting for income taxes on the seven
largest U.S. companies. With an effective date for
years beginning after December 15, 2016, corpo-
rate accountants and financial executives need
to understand the financial reporting implications
of the changes that will add volatility to reported
income tax expense, earnings, and effective tax
rates of companies that rely heavily on share-
based payments. © 2017 Wiley Periodicals, Inc.
Refereed (Double-Blind
Peer Reviewed)

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT