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Proposed ASU to improve employee share-based payment accounting issued

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Contents
FASB issues ASU for technical corrections and improvements
Proposed ASU to improve employee share-based payment accounting issued
Highlights of June 10 FASB meeting on hedging posted
Webcast scheduled for private companies and not-for-profit organizations
EITF releases agenda for June 18 meeting
SEC staff to release ‘no-review’ letters on EDGAR
GASB proposes guidance on irrevocable split-interest agreements



FASB issues ASU for technical corrections and improvements

The FASB recently issued ASU 2015-10, Technical Corrections and Improvements, to update the Codification for technical corrections and clarifications affecting a wide variety of topics, including ASC 470, Debt; ASC 718, Compensation: Stock Compensation; and ASC 860, Transfers and Servicing.

The amendments correct unintended application of the guidance, make minor improvements to the Codification that are not expected to have a significant effect on current accounting practice, or make the Codification easier to understand and apply.

Amendments and corrections with transition guidance are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. All other amendments are effective upon the ASU’s issuance.



Proposed ASU to improve employee share-based payment accounting issued

The FASB issued a proposed ASU, Improvements to Employee Share-Based Payment Accounting, to amend and simplify several aspects of the guidance contained in ASC 718, Compensation: Stock Compensation. The most significant proposed changes are discussed below.

Income tax consequences

Under the proposal, an entity would recognize all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement rather than in additional paid-in capital (APIC), eliminating the need to track APIC pools for share-based payments.

An entity would also recognize excess tax benefits, regardless of whether the benefit reduces taxes payable, in the current period. The excess tax benefits would be combined with other income tax cash flows and classified as an operating activity instead of being separately reported as a financing activity.

Forfeitures

Under the proposed ASU, an entity could make an entity-wide accounting policy election to recognize the effect of forfeitures in compensation cost when they occur instead of estimating expected future vesting.

Statutory tax withholding

The maximum threshold for withholding in order to qualify for equity classification of an award would be changed from the employer’s minimum withholding requirement to the employee’s maximum individual statutory tax rate. The proposed guidance would also clarify that an employer should classify cash flows to repurchase shares for statutory income tax withholding purposes as a financing activity, consistent with the repurchase of an entity’s equity.

Classification of awards with repurchase features

The proposed guidance would remove the distinction between contingent events that allow exercise of a repurchase feature that are or are not within the control of the employee when classifying an award. Instead, an entity would assess whether the contingent event is probable of occurring.

Nonpublic entity proposals

The exposure draft proposes two practical expedients that would be available only to nonpublic entities.

The first practical expedient would permit a nonpublic entity to make an entity-wide accounting policy election to estimate the expected term of an award as follows:

  • If vesting depends only upon a service condition, the entity would estimate the expected term as the midpoint between the requisite service period and the contractual term of the award.
  • If vesting depends only upon a performance condition and the entity determines at the grant date that it is probable that the performance condition will be achieved, it would estimate the expected term as the midpoint between the requisite service period and the contractual term. If the entity determines at the grant date that it is not probable that the performance condition will be achieved, it would estimate the expected term as the contractual term of the award.

The second practical expedient would allow an entity to make a one-time policy election to measure all liability-classified awards at intrinsic value instead of fair value.

Transition provisions and effective date

For the amendments that change the recognition and measurement of share-based payment awards, the Board proposes transition through a cumulative-effect adjustment to equity as of the beginning of the annual period in which the guidance is effective; however, the proposed accounting for excess tax benefits and tax deficiencies and the practical expedients for estimating the expected term would apply prospectively.

An entity would apply the proposed amendments related to classification of cash flows retrospectively for all prior periods presented.

Comments on the proposed ASU are due by August 14. The Board will determine the effective date and consider early adoption after it receives stakeholder feedback on the proposed amendments.



Highlights of June 10 FASB meeting on hedging posted

All decisions reached at Board meetings are tentative and may be changed at future meetings. Decisions are included in an exposure draft only after a formal written ballot. Decisions reflected in exposure drafts are often changed in redeliberations by the Board based on information received in comment letters, at public roundtable discussions, and from other sources. Board decisions become final after a formal written ballot to issue a final Accounting Standards Update.

At its meeting on June 10, the Board continued redeliberating the May 2010 proposed ASU, Accounting for Financial Instruments and Revisions to the Accounting for Derivative Instruments and Hedging Activities, focusing on the following issues:

  • Hedges of benchmark interest rates
  • Potential groupings of alternative decision packages that can be selected as the Board determines its proposal to amend the hedge accounting model

The Board made no technical decisions.



Webcast scheduled for private companies and not-for-profit organizations

The FASB announced that it will provide a webcast on June 23 from 1 p.m. to 2:40 p.m. (EDT) to discuss its standard-setting activities pertaining to private companies and not-for-profit organizations.



EITF releases agenda for June 18 meeting

The EITF recently released its proposed agenda for its June 18 meeting, which includes the following topics:

  • Issue 15-A, “Application of the Normal Purchases and Normal Sales Scope Exception to Certain Electricity Contracts within Nodal Energy Markets”
  • Issue 15-C, “Employee Benefit Plan Simplifications”
  • Issue 15-D, “Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships”
  • Issue 15-E, “Contingent Put and Call Options in Debt Instruments”
  • Issue 15-F, “Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments”



SEC staff to release ‘no-review’ letters on EDGAR

In an effort to increase transparency, the Division of Corporation Finance recently announced that the staff will release its correspondence with issuers relating to Securities Act registration statements that are not selected for review. These “no-review” letters will be released through EDGAR commencing on July 1 for registration statements with an effective date of June 1, 2015 or later.



GASB proposes guidance on irrevocable split-interest agreements

The Governmental Accounting Standards Board (GASB) issued an exposure draft, Accounting and Financial Reporting for Irrevocable Split-Interest Agreements, proposing recognition and measurement guidance for governments that benefit from irrevocable split-interest agreements.

The proposed statement would apply to state and local governments that are beneficiaries of irrevocable split-interest agreements established by a trust or an equivalent structure whereby the donor irrevocably transfers the assets to an intermediary to administer those resources for the unconditional benefit of the government and at least one other beneficiary.

The proposal would require a government that receives resources as an intermediary under an irrevocable split-interest agreement to recognize all of the following items:

  • The assets
  • A liability related to the other designated beneficiary’s portion of those assets
  • A deferred inflow of resources related to the government’s portion of those assets

If a third party administers the agreement, a government would recognize an asset and deferred inflows for its beneficial interest when it has sufficient information to measure the interest and all the recognition conditions have been met.

In addition, a government would recognize revenue when it receives a disbursement under the agreement.

The provisions would be effective for periods after December 15, 2016, with early application encouraged. A government would apply the guidance retrospectively to all periods presented unless restatement is impractical, in which case, the cumulative effect would be recognized as an adjustment to beginning net position (or fund balance) as of the earliest period restated.

Comments on the proposal are due September 18.



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