Responding to concerns that the accounting for share-based payments to employees is too complex and costly for companies to apply, the Financial Accounting Standards Board has agreed to look into ways to improve the standard adopted in 2004.
At its meeting last week, the board added a project to address the accounting for share-based payments as part of its broader simplification initiative aimed at reducing the cost and complexity of financial reporting while improving or maintaining the usefulness of information reported to investors.
Areas to be scrutinized include minimum statutory withholdings, the presentation of employee taxes paid when the company withholds shares to meet those minimum withholding requirements, the accounting for forfeitures, the accounting for income taxes upon vesting or settlement of awards and the presentation of excess tax benefits.
Ernst & Young welcomed the move in an alert to clients. “We support FASB’s effort to simplify the accounting for share-based payments for public and nonpublic entities,” it said.
FASB’s Statement 123(R) requires all share-based payments to employees to be recognized in the income statement based on their fair values. A recent post-implementation review conducted by the Financial Accounting Foundation concluded that although public companies generally can understand and apply the standard, private companies often have difficulty understanding and applying it because of “the complexity of the financial instruments they use for share-based payment awards and their lack of internal expertise.”
FASB Chairman Russ Golden said in August when the board received FAF’s report that there were no immediate plans to take up any rulemaking as a result of the findings, but the board would “continue our outreach to stakeholders to identify improvements to account for share-based payment transactions.”
As part of the new project, FASB has also asked staff to look into some additional areas that could make the accounting requirements easier for private companies to apply, such as practical expedients related to intrinsic value, expected term and formula value plans.
Source: Compliance Week FASB Pursues Improvements to Stock Option Accounting