FASB to allow private companies a practical way to account for share-based awards
The Financial Accounting Standards Board has endorsed a recommendation from its Private Company Council to allow a practical expedient for a private company to determine the current price input of equity-classified share-based awards issued to both employees and nonemployees.
During a meeting Wednesday, the board agreed to issue an accounting standards update that FASB board members can vote on by written ballot after the staff drafts the document. Companies would be able to use a valuation method based on Treasury regulations related to Section 409A of the Tax Code.
The Private Company Council regularly meets to give FASB its perspectives on the issues facing privately held companies and, during a meeting in June, the PCC members reached a consensus on offering private businesses the practical expedient. Aligning the accounting treatment with the way private companies are required under the tax regulations from the Treasury and the Internal Revenue Service to account for stock options and other types of equity compensation would make it easier for them to deal with the complexities of accounting and tax rules.
Courtesy of GASB
“Specifically, the PCC decided that a nonpublic entity would be permitted to elect the practical expedient for equity-classified share-based awards issued to both employees and nonemployees granted or modified during fiscal years beginning on or after Dec. 15, 2021, and interim periods in the following year,” FASB said in a summary of the tentative board decisions reached at Wednesday’s meeting. “Early adoption, including adoption within an interim period, would be permitted for financial statements that have not yet been issued or made available for issuance as of the issuance date of the final update.”
The PCC also decided that if a private company opts to elect the practical expedient, the business would be required to apply it on a measurement-date-by-measurement-date basis; use a prospective transition method; and disclose that it has applied the practical expedient.