We have updated our accounting and financial reporting guide for Stock-based compensation primarily to reflect content moved to the accounting and financial reporting guide for Financial statement presentation as well as the issuance of ASU 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. A summary of significant changes to the 2012 edition (completed in March 2013) and the 2013 edition (completed in July 2015) is located in Appendix C of the guide.
The application of the guidance contained in ASC 718, Compensation—Stock Compensation, continues to be a complex undertaking. The guidance’s many nuances impact not only the accounting for employee stock-based compensation, but also the related corporate income tax accounting, the calculation of earnings per share, and the presentation of the cash flow statement. The 2013 second edition of our stock-based compensation guide explains those and many other issues.
This guide also addresses certain issues that are uppermost on the minds of individuals who are responsible for administering stock-based compensation plans. For example, many companies are deciding to move away from service-based stock options and employee stock purchase plans in favor of awards that align compensation with company performance. This has been accomplished through both the granting of new awards and the modification of existing awards—both of which can have significant accounting ramifications. In assessing alternative plan designs, a company will want to address the related tax consequences for both itself and its employees. The guide explains the considerations necessary to determine if a proposed plan meets the criteria for tax deductibility and whether employees may elect to be taxed on the grant date rather than the vesting date, among others.
This guide will help companies understand the accounting rules that apply to their current stock-based compensation plans. As companies reassess their plans, the guide will help identify alternative plans available, contribute to determining the implications of each plan on the company’s financial results, and assist with the development and implementation of a new plan. Given the desire of many companies to better align compensation with the performance and goals of the company and its shareholders, there are sure to be developments in the area of stock-based compensation for years to come.
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