Does your company offer share-based payment awards to employees? If so, there are some new rules you’ll have to follow.
The Financial Accounting Standards Board (FASB) recently issued an Accounting Standards Update (ASU) entitled Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The ASU affects all organizations that issue share-based payment awards to their employees.
The ASU simplifies several aspects of the accounting for share-based payment award transactions, including:
- The income tax consequences
- Classification of awards as either equity or liabilities, and
- Classification on the statement of cash flows.
The ASU also simplifies two areas specific to private companies:
- Practical Expedient for Expected Term: In lieu of estimating the period of time that a share-based award will be outstanding, private companies can now apply a practical expedient to estimate the expected term for all awards with performance or service conditions that have certain characteristics.
- Intrinsic Value: Private companies can now make a one-time election to switch measuring all liability-classified awards at fair value to measuring them at intrinsic value. Previously, private companies were provided an option to measure all liability-classified awards at intrinsic value, but some private companies were unaware of that option.