Employee stock options valuation fasb

Putting all stock option tax reporting on the income statement is a big change, a standard setter says.

If the Financial Accounting Standards Board is right, CFOs of companies that pay their employees and executives in stock options and restricted shares will find it simpler to report the related tax deductions starting at the end of this year. Moreover, finance chiefs at private companies, in particular, will have an easier time reporting on share-based compensation under an accounting standards update issued last week, the standard setters feel.

The effective dates for the new guidance are coming up fast. The update will go live for public companies for yearly periods starting after December 15 and for interim periods within those annual periods.

Private companies must start complying for annual periods beginning after December 15, , and for interim periods within annual periods beginning after December 15, Senior managements of private companies who want to start adopting the measure early may do so for any interim or annual period they want.

The guidance will simplify the accounting for the income tax consequences of share-based-payment award transactions, according to FASB. Such increases can create accounting burdens for employers, however.

Adding to the complexity, tax deficiencies related to stock awards may be recognized in one of two ways. One way is as an offset to the excess tax benefits.

Another way is on the income statement. The new standard will erase all but one way of reporting of tax benefits and deficiencies. We think the proposed approach results in a financial reporting that is not reflective of the nature of the transaction and introduces other complexities.

FASB expects the update will simplify the accounting for private companies that provide share-based payments to employees. Under current GAAP, however, private companies as well as public ones must use a valuation technique that takes into account the expected term of the share option. The expected term is the period during which the award is expected to be outstanding, assuming that it vests.

Currently, private companies must estimate the period of time that each share-based award will be outstanding. Instead, they can measure them at intrinsic value.

FASB's Plans Regarding the Accounting for Employee Stock Options

Previously, public companies could measure all such liability-classified awards at intrinsic value, but some private companies were unaware of that option. Discussing the update overall, FASB chair Russell G. Your email address will not be published.

Stock Option Rules Simplify Reporting, FASB Says

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