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.
Hi, I’m Nicole Berman.
Stock-based compensation is changing. The new guidance is effective in 2017.
I’ll give you a quick summary and then you can read the details at CFOdirect.com. There are two main points I would like to cover:
One, the tax effect of stock compensation will now all go directly to the income statement. The tax effect is the difference between the deduction the Company expected to get and the one they actually received for stock compensation. This new guidance is simpler, but it will increase income statement volatility.
And secondly, things are also moving on the cash flow statement. All tax related cash flows will now be included as operating activities, like all other tax effects.
In addition, the new guidance includes a few other changes as well. Going forward, companies can:
- Withhold more taxes on their employee's behalf without triggering liability accounting
- Make a policy election to account for forfeitures when they occur instead of estimating them
- And adopt a couple of simplifications to the valuation of private company awards
Those are the key changes. One last thing is there are differing transition methods for each of these changes. While transition may be different, you’ll need to adopt all parts of the standard at one time. It’s not an ala carte menu.
To read more about these changes to stock-based compensation, please visit CFOdirect.com
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