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The FASB: Simplifying your life
The Financial Accounting Standards Board (FASB) is working on a project to simplify accounting and tax accounting for stock-based compensation under Accounting Standards Codification (ASC) Topic 718. Taxand USA discusses the details.
The FASB is currently working on an exposure draft of the proposed rules, which it expects to release soon. The exposure draft will have a 60-day comment period, and the FASB hopes to have final rules in place before the end of 2015.
Generally, equity awards are accounted for under ASC 718 by recognising compensation expense based on the fair value of the award on the date of grant.
The compensation expense is generally recognised over the vesting period of the award. As the compensation expense is recognised, a corresponding deferred tax asset (DTA) is established based on the compensation expense and the company’s tax rate. The DTA continues to accumulate until the award is settled (eg vesting of restricted stock, exercise of stock option).
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Even though the FASB’s ultimate goal is simplification, the proposed changes could be met with resistance from the business community. Only time will tell whether these changes will materialise or whether the FASB achieves its goal of simplification. In the meantime, companies should be aware of the upcoming changes and begin to think about how these will impact their company and current processes.