US GAAP Simplification of Accounting for Stock Compensation
By Jeffrey A. Ford, Grossman Yanak & Ford LLP
The FASB ASU 2016-09, Improvements to Share-Based Payment Accounting, simplified several aspects of accounting for share-based payment awards (SPAs) to employees. Here, we focus on those simplifications related to forfeitures, excess tax benefits and tax deficiencies, statement of cash flows classification, and practical expedients for non-public companies. This guidance does not apply to awards to nonemployees.
Previously, US GAAP required entities to estimate forfeitures to recognise compensation costs over an SPA’s requisite service period. Now, entities may elect to account for forfeitures as they occur rather than estimating forfeitures at the award’s grant date. This guidance, however, does not apply to replacement SPAs exchanged under ASC 805, Business Combinations.
Excess Tax Benefits and Tax Deficiencies
An entity generates excess tax benefits when the tax deduction for an SPA exceeds the SPA’s compensation cost under US GAAP; tax deficiencies arise when the tax deduction is less than the compensation cost. Previously, excess benefits and deficiencies recognised, when realised, as additional paid-in capital (APIC) and accumulated in an APIC pool and was only recognised in the income statement once the APIC pool was exhausted. Now, excess tax benefits and deficiencies are recorded in the income statement in the reporting period in which they occur, regardless of whether they affect current income taxes payable.
Statement of Cash Flows
Presentation of excess tax benefits on the statement of cash flows is simplified by requiring such to be included in operating activities. It also states that cash payments to a taxing authority on an employee’s behalf be classified as financing activities.
Practical Expedients for Non-public Companies
Prior guidance required nonpublic entities to use valuation techniques that considered the expected term to estimate the fair value of SPAs. Non-public entities may now elect a practical expedient to estimate an SPA’s term.
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Grossman Yanak & Ford LLP
Advisory, Auditing & Accounting, Tax
Pittsburgh (PA), USA
T: +1 412 338 93 02
Grossman Yanak & Ford LLP is a full-service CPA firm, headquartered in Pittsburgh, Pennsylvania. Their accounting and consulting service offerings include audit and assurance, tax advisory and compliance, business valuation and litigation support, business advisory/ management consulting, and ERP solutions.
Jeffrey A. Ford is a Founding Partner at Grossman Yanak & Ford LLP. He has over 30 years of experience, focused in audit and assurance, M&A transactions, and technology consulting. Jeff has served a variety of ownership groups including public and private companies, private equity groups and international investors.
Published: Auditing, Reporting & Compliance Newsletter, No. 03, Spring 2020 l Photo: Allan - stock.adobe.com