Simplification of aspects of stock-based compensation accounting

The FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting in March 2016 intended to simplify aspects of the accounting for and reporting of stock-based compensation as follows:

  • the tax effects of share-based payments will now be recognized in the income statement;
  • windfall benefits/deficiencies will be reported as deferred tax assets/liabilities when they arise;
  • all tax-related cash flows from share-based payments will be reported as operating activities in the statement of cash flows;
  • the classification of awards as liabilities or equity due to tax withholdings may change; and
  • accounting for forfeitures will change.

Nonpublic entities have two additional simplification provisions related to determining the expected term of certain share-based awards, and upon adoption of the new guidance, a one-time opportunity to change the measurement basis for all liability-classified awards to intrinsic value.

The guidance is effective in Q1 2017 for calendar year-end public business entities and in 2018 for calendar year-end nonpublic business entities.

 

 

Video perspectives

Stock compensation is changing, effective for 2017. New FASB guidance could cause significant volatility in income tax expense from period to period. The tax effect of stock compensation will now all go directly to the income statement. Things are also moving on the cash flow statement. All tax related cash flows will now be included as operating activities. Watch PwC’s Nicole Berman describe these and other changes.

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Stock compensation simplification

 

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