The FASB Simplifies the Accounting for Share‐Based Payments

• Date: 01 May 2017
• DOI: http://doi.org/10.1002/jcaf.22275
• Published date: 01 May 2017

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© 2017 Wiley Periodicals, Inc.

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

DOI 10.1002/jcaf.22275

The FASB Simplifies the Accounting

for Share-Based Payments

Nancy Nichols, Luis Betancourt, and Irana Scott

INTRODUCTION

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

difficult:

• Accounting for

additional paid-

in capital (APIC)

pools (public and

nonpublic entities)

• Liability versus

equity classifica-

tion (public and

nonpublic entities)

• Minimum tax

withholdings

(public entities)

• Estimating

expected forfei-

tures (nonpublic

entities)

• 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)