On the Horizon -- Employee share-based payment guidance issued

Contents FASB      New guidance issued on employee share-based payment accounting
     Tentative decisions from March 30 meeting posted

GASB issues guidance on split-interest agreements

FASB New guidance issued on employee share-based payment accounting The Board recently issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of the accounting for share-based award transactions and adds two practical expedients for nonpublic entities.

The new guidance includes changes to the accounting for share-based payment awards issued to employees in the following areas:

  • Accounting for income taxes upon vesting or settlement of employee awards
  • Presentation on the statement of cash flows of (1) excess tax benefits, and (2) taxes paid when an employer withholds shares to meet minimum statutory withholding requirements
  • Method of accounting for forfeitures
  • Threshold for the number of shares withheld to satisfy employee income tax obligations and still qualify for equity classification
  • Nonpublic entity practical expedients related to (1) estimating the expected term for awards with service or performance conditions, and (2) measuring liability-classified awards at intrinsic value

For public entities, the new guidance is effective in fiscal years, and in interim periods within those fiscal years, beginning after December 15, 2016. All other entities should apply the new guidance in fiscal years beginning after December 15, 2017 and in interim periods within fiscal years beginning after December 15, 2018. Early adoption is permitted for all entities, including adoption in an interim period; however, all of the requirements of the new guidance must be adopted in the same period.

For the amendments that change the recognition and measurement of share-based payment awards, the new guidance requires transition under a modified retrospective approach, with a cumulative-effect adjustment made to retained earnings as of the beginning of the fiscal period in which the guidance is adopted. Prospective application is required for the accounting for excess tax benefits and tax deficiencies and for use of the practical expedient for estimating the expected term.

An entity should apply the new guidance retrospectively for all periods presented related to the classification of employee taxes paid on the statement of cash flows when an employer withholds shares to meet the minimum statutory withholding requirements. It can elect to apply the new guidance either prospectively or retrospectively, however, to the presentation of excess tax benefits on the statement of cash flows.

Tentative decisions from March 30 meeting 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.

The FASB met on March 30 to discuss various issues related to two of its ongoing projects affecting not-for-profit entities (NFPs): financial statement presentation and consolidation. The Board made the tentative decisions summarized below for each project.

Phase 1 of financial statement presentation of NFPs

The Board continued its redeliberations on the proposed ASU, Presentation of Financial Statements of Not-for-Profit Entities, and tentatively decided that NFPs should apply the proposed guidance on a retrospective basis for all annual periods presented. However, if comparative financial statements are presented, an NFP can elect to omit from comparative periods an analysis of expenses by both functional and natural classification, as well as disclosures related to liquidity and the availability of resources.

The Board also tentatively decided that NFPs would be required to apply the proposed guidance retrospectively to interim financial statements in the year of adoption only if the interim financial statements are reported with the annual financial statements for that fiscal year.

Further, the Board tentatively decided that the proposed guidance would be effective for financial statements for fiscal years beginning after December 15, 2017 and for interim financial statements for subsequent periods; however, early adoption would be permitted subject to the transition method discussed above.

Consolidation of for-profit limited partnerships by NFP general partners

The Board discussed outreach performed on alternatives that would clarify when NFP general partners should consolidate for-profit limited partnerships or similar entities.

ASU 2015-02, Amendments to the Consolidation Analysis, eliminated certain consolidation guidance applicable to NFPs, and instead referred NFPs that are general partners of for-profit limited partnerships to other consolidation guidance in the Codification, which stakeholders indicated was unclear.

The Board tentatively decided to maintain the current practice for NFP general partners by reinstating the consolidation guidance that was eliminated by ASU 2015-02 and including it in ASC 958-810, Not-for-Profit Entities – Consolidation.

NFPs that have early adopted the guidance in ASU 2015-02 would apply the proposed guidance using either a modified retrospective approach or a retrospective approach. NFPs that have not yet adopted the guidance in ASU 2015-02 would apply the proposed guidance using the same effective date and transition provisions indicated in ASU 2015-02.

The staff will draft a proposed ASU for vote by the Board.

GASB issues guidance on split-interest agreements The Governmental Accounting Standards Board (GASB) issued Statement 81, Irrevocable Split-Interest Agreements, which provides recognition and measurement guidance for governments that benefit from these types of agreements, including charitable lead trusts, charitable remainder trusts, and life-interests in real estate.

Under a typical irrevocable split-interest agreement, a donor transfers assets for the shared benefit of at least two beneficiaries: a government (often a public college, university, or hospital) and another donor-designated beneficiary, such as the donor, a relative of the donor, or other legal person or entity (including another government). The related assets are held and administered by an intermediary, which can be the government that is designated as one of the beneficiaries, or by a separate third party, such as a bank.

The new guidance addresses when split-interest agreements that are administered by a third party constitute an asset for accounting and financial reporting purposes. It also provides recognition guidance for situations where the following conditions apply:

  • The government is both the intermediary and either the lead or remainder interest beneficiary.
  • The split-interest agreement is in the form of a life-interest in real estate.

The new guidance, which applies to all state and local governments, is effective for financial statements for periods beginning after December 15, 2016 and should be applied retroactively by restating prior periods. If restatement of prior periods is not practicable, the cumulative effect of applying the new guidance should be reported as a restatement of beginning net position for the earliest period that is restated. Earlier application is encouraged.

© 2016 Grant Thornton LLP, U.S. member firm of Grant Thornton International Ltd. All rights reserved. This Grant Thornton LLP On the Horizon provides information and comments on current accounting and SEC reporting issues and developments. It is not a comprehensive analysis of the subject matter covered and is not intended to provide accounting or other advice or guidance with respect to the matters addressed in this publication. All relevant facts and circumstances, including the pertinent authoritative literature, need to be considered to arrive at conclusions that comply with matters addressed in this publication. For additional information on topics covered in this publication, contact a Grant Thornton client-service partner.