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Statutory Accounting Principles (E) Working Group
Maintenance Agenda Submission Form
Form A
Issue: ASU 2016-09: Improvements to Employee Share-Based Payment Accounting
Check (applicable entity):
P/C
Life
Health
Modification of existing SSAP
New Issue or SSAP
Interpretation
Description of Issue: ASU 2016-09: Improvements to Employee Share-Based Payment Accounting was issued in
March 2016 as part of the FASB simplification initiative. The objective of this initiative is to identify, evaluate,
and improve areas of U.S. GAAP for which cost and complexity can be reduced while maintaining or improving
the usefulness of the information provided to the users of the financial statements.
The areas for simplification involve several aspects of the accounting for share-based payment transactions,
including the income tax consequences, classification of awards as either equity or liabilities, and classification on
the statement of cash flows. For public entities, the amendments are effective for annual reporting periods
beginning after Dec. 15, 2016 and interim reporting periods within those annual periods. (This generally results
with a Jan. 1, 2017 effective date.) For all other entities, the amendments are effective for annual periods
beginning after Dec. 15, 2017 and interim periods within annual periods beginning after Dec. 15, 2018. (This
generally results with a Dec. 31, 2018 effective date, with interim reporting beginning in 2019.) Early adoption is
permitted, but if an entity elects to adopt early, all of the amendments must be adopted. The U.S. GAAP guidance
specifies either retrospective, prospective or modified retrospective transition separately for each amendment.
1. Accounting for Income Taxes – Current GAAP: Entity must determine for each award whether the
difference between the deduction for tax purposes and the compensation cost recognized for financial
reporting purposes results in either an excess tax benefit or a tax deficiency. Excess tax benefits are
recognized in additional paid-in capital, tax deficiencies are recognized either as an offset to accumulated
excess tax benefits, if any, or in the income statement. Excess tax benefits are not recognized until the
deduction reduces taxes payable. Simplification: All excess tax benefits and tax deficiencies (including
tax benefits of dividends on share-based payment awards) should be recognized as income tax expense or
benefit in the income statement. The tax effects of exercised or vested awards should be treated as
discrete items in the reporting period in which they occur. An entity also should recognize excess tax
benefits regardless of whether the benefit reduces taxes payable in the current period.
2. Classification of Excess Tax Benefits to the Statement of Cash Flows – Current GAAP: Excess tax
benefits must be separated from other income tax cash flows and classified as a financing activity.
Simplification: Excess tax benefits should be classified along with other income tax cash flows as an
operating activity.
3. Forfeitures – Current GAAP: Accruals of compensation cost are based on the number of awards that are
expected to vest. Simplification: An entity can make an entity-wide accounting policy election to either
estimate the number of awards that are expected to vest (current GAAP) or account for forfeitures when
they occur.
4. Minimum Statutory Tax Withholding Requirements – Current GAAP: One of the requirements for an
award to qualify for equity classification is that an entity cannot partially settle the award in cash in
excess of the employer’s minimum statutory withholding requirements. Simplification: The threshold to
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qualify for equity classification permits withholding up to the maximum statutory tax rates in the
applicable jurisdictions.
5. Classification of Employee Taxes Paid on the Statement of Cash Flows When an Employers Withholds
Shares for Tax-Withholding Purposes – Current GAAP: There is no guidance on classification of cash
paid by an employer to the taxing authorities when directly withholding shares for tax-withholding
purposes. Simplification: Cash paid by an employer when directly withholding shares for tax-withholding
purposes should be classified as a financing activity.
6. Practical Expedient - Expected Term – Current GAAP: Entities are required to estimate the period of time
that an option will be outstanding. Simplification: A nonpublic entity can make an accounting policy
election to apply a practical expedient to estimate the expected term for all awards with performance or
service conditions that meet certain conditions.
7. Intrinsic Value – Current GAAP: At initial adoption of Topic 718, Compensation—Stock Compensation,
nonpublic entities were provided an option to measure all liability-classified awards at intrinsic value.
Some nonpublic entities were not aware of that option. Simplification: A nonpublic entity can make a
one-time accounting policy election to switch from measuring all liability-classified awards at fair value
to intrinsic value.
Existing Authoritative Literature:
SSAP No. 104R—Share-Based Payments provides the related statutory accounting guidance. This Statement has
predominantly adopted, with modification U.S. GAAP guidance as detailed below:
144.
This statement adopts ASU 2014-12, Compensation – Stock Compensation, Accounting for
Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be
Achieved after the Requisite Service Period (ASU 2014-12) with an effective date of January 1, 2016,
with early adoption permitted. ASU 2014-12 allows prospective or retrospective adoption based on the
election of the reporting entity. This election is adopted for statutory financial statements; however,
reporting entities shall follow the approach used when completing their GAAP financials (if applicable).
The disclosures in SSAP No. 3—Accounting Changes and Corrections of Errors shall be completed in the
first interim and annual reporting period of adoption.
145.
This statement adopts with modification GAAP guidance regarding stock options and stock
purchase plans reflected in Topic 718: Compensation – Stock Compensation, as amended by ASU 201013, Compensation – Stock Compensation (Topic 18): Effect of Denominating the Exercise Price of a
Share-Based Payment Award in the Current of the Market in Which the Underlying Equity Security
Trades, with the exception of FASB Codification Subtopic 718-40: Employee Stock Ownership Plans.
Statutory guidance on employee stock ownership plans is provided in SSAP No. 12—Employee Stock
Ownership Plans. This adoption with modification includes the related implementation guidance reflected
within the FASB Codification Topic 718, not reflected within this standard. Modifications to the adopted
GAAP guidance are as follows:
a.
GAAP references are revised to reference applicable statutory accounting guidance.
b.
GAAP reporting line items (either explicitly provided in the statement or adopted by
reference – such as the GAAP implementation guidance) shall be replaced to reference
applicable statutory annual statement line items. (For example, GAAP references to
“other comprehensive income” shall be reflected within “Surplus - Unassigned Funds”).
c.
GAAP guidance to calculate earnings per share is not applicable to statutory accounting
and has not been included within the statement.
d.
GAAP effective date and transition, and transition disclosures have not been
incorporated. Reporting entities shall follow the effective date and transition elements
provided within this statement.
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e.
Inclusion of guidance specific to statutory for consolidated/holding company plans.
146.
This statement adopts with modification GAAP guidance regarding the exchange of equity
instruments for goods or services with non-employees as reflected in Subtopic 505-50 – Equity, EquityPayments to Non-Employees. Modifications to this adopted GAAP guidance are as follows:
a.
Prepaid assets are nonadmitted.
b.
Costs for goods and services shall be recognized when the goods or services are
received consistent with other statutory accounting principles.
c.
Minimum value method for determining fair value is rejected for all entities.
d.
Estimates of expected costs for the exchange of equity instruments dependent on market
conditions or performance obligations shall be determined based on the best estimate of
fair values. If a better estimate cannot be determined, then the midpoint (rather than the
lowest amount) of aggregate fair values within the range shall be used.
e.
GAAP references are revised to reference applicable statutory accounting guidance.
147.
The adoption with modification of FASB Codification Topic 718 and Subtopic 505-50 detailed in
paragraphs 145-146 also reflects adoption with modification of the following pre-codification GAAP
standards:
a.
FAS 123R, Share-Based Payment (FAS 123R);
b.
FAS 150, Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity (FAS 150) – (Adopted only to the extent referenced in FAS 123R for
classifying instruments as equity or liability for application in this statement. Adopted
guidance is reflected in Exhibit A);
c.
FASB Staff Position FAS 123(R)-1: Classification and Measurement of Freestanding
Financial Instruments Originally issued in Exchange for Employee Services under FASB
Statement No. 123(R) (FAS 123R-1);
d.
FASB Staff Position (FSP) FAS 123(R)-2: Practical Accommodation to the Application of
Grant Date as Defined in FASB Statement No. 123(R) (FSP FAS 123R-2);
e.
FASB Staff Position (FSP) FAS123(R)-4: Classification of Options and Similar
Instruments Issued as Employee Compensation That Allow for Cash Settlement upon the
Occurrence of a Contingent Event (FSP FAS 123R-4);
f.
FASB Staff Position (FSP) FAS 123(R)-5: Amendment of FASB Staff Position FAS 123R1 (FSP FAS 123R-5);
g.
FASB Staff Position (FSP) FAS 123(R)-6: Technical Corrections of FASB Statement No.
123(R) (FSP FAS 123R-6);
h.
FASB Emerging Issues Task Force 96-18: Accounting for Equity Instruments That are
Issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods or
Services;
i.
FASB Emerging Issues Task Force 97-14: Accounting for Deferred Compensation
Arrangements Where Amounts Earned Are Held in a Rabbi Trust and Invested (EITF 9714);
j.
FASB Emerging Issues Task Force 00-08: Accounting by a Grantee for an Equity
Instrument to Be Received in Conjunction with Providing Goods or Services;
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k.
FASB Emerging Issues Task Force 00-16: Recognition and Measurement of Employer
Payroll Taxes on Employee Stock-Based Compensation (EITF 00-16);
l.
FASB Emerging Issues Task Force 00-18: Accounting Recognition for Certain
Transactions Involving Equity Instruments Granted to Other Than Employees; and
m.
FASB Technical Bulletin 97-01, Accounting under Statement 123 for Certain Employee
Stock Purchase Plans with a Look-Back Option (TB 97-01)
148.
The adoption with modification of FASB Codification Topic 718 in this statement reflects rejection
of the following pre-codification GAAP standards:
n.
FASB Staff Position (FSP) FAS 123(R)-3: Transition Election Related to Accounting for
the Tax Effects of Share-Based Payment Awards (FSP FAS 123R-3); and
o.
FASB Staff Position (FSP) EITF 03-6-1; Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities (FSP EITF 03-6-1).
Activity to Date (issues previously addressed by the Working Group, Emerging Accounting Issues (E)
Working Group, SEC, FASB, other State Departments of Insurance or other NAIC groups): None
Information or issues (included in Description of Issue) not previously contemplated by the Working
Group: None.
Staff Recommendation:
It is recommended that the Working Group move this item to the nonsubstantive active listing and expose
proposed revisions to SSAP No. 104R as detailed within this agenda item. These revisions propose adoption
with modification of the ASU 2016-09 guidance for share-based payments, with revisions to reflect changes
in SSAP No. 104R. Staff has proposed similar transition guidance that what was captured previously in
SSAP No. 104R, noting that the company should follow the transition method that is consistent with how
they adopted the U.S. GAAP revisions. Staff asks for comment on this transition guidance as it will result
with different transition for the different amendments, and possibly different transition based on a
company’s elections under U.S. GAAP. Staff inquires whether there are non-GAAP companies that would
be captured in this guidance and specifically requests comments on the proposed transition for these
companies.
The proposed revisions to SSAP No. 104R are presented in numerical order below.
Please see Appendix A for detail of the changes that correspond to the U.S. GAAP simplification revisions and
related transition guidance.
26.
Similarly, a provision for either direct or indirect (through a net-settlement feature) repurchase of
shares issued upon exercise of options (or the vesting of nonvested shares), with any payment
due employees withheld to meet the employer’s statutory withholding requirements resulting from
the exercise, does not, by itself, result in liability classification of instruments that otherwise would
be classified as equity. However, if the amount that is withheld, or may be withheld at the
employer’s discretion, in excess of the maximum statutory tax rates in the employee’s applicable
jurisdictions, the entire award shall be classified and accounted for as a liability. That is, to qualify
for equity classification, the employer must have a statutory obligation to withhold taxes on the
employee’s behalf, and the amount withheld cannot exceed the maximum statutory tax rates in
the employees’ applicable jurisdictions. The maximum statutory tax rates are based on the
applicable rates of the relevant tax authorities (for example, federal, state, and local), including
the employee’s share of payroll or similar taxes, as provided in tax law, regulations, or the
authority’s administrative practices, not to exceed the highest statutory rate in that jurisdiction,
even if that rate exceeds the highest rate that may be applicable to the specific award grantee.
27.
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27.
Cash paid to a tax authority by an employer when withholding shares from an employee’s award
for tax-withholding purposes shall be considered cash flows from financing activities in the
Statement of Cash Flows as it represents an outlay to reacquire the entity’s equity instruments.
36.
The measurement objective for equity instruments awarded to employees is to estimate the fair
value at the grant date of the equity instruments that the entity is obligated to issue when employees have
rendered the requisite service and satisfied any other conditions necessary to earn the right to benefit
from the instruments (for example, to exercise share options). That estimate is based on the share price
and other pertinent factors, such as expected volatility, at the grant date. The following subparagraphs
provide guidance regarding the measurement objective and measurement date for liability instruments:
49.
a.
Measurement Objective and Measurement Date for Liabilities: At the grant date, the
measurement objective for liabilities incurred under share-based compensation
arrangements is the same as the measurement objective for equity instruments awarded
to employees as described in paragraph 36. However, the measurement date for liability
instruments is the date of settlement.
b.
Measurement Objective and Measurement Date for Liabilities of Entities Subject to
Paragraph 48: An entity subject to paragraph 48 shall make a policy decision of whether
to measure all of its liabilities incurred under share-based payment arrangements at fair
value or to measure all such liabilities at intrinsic value. Consistent with the guidance in
paragraph 48, an entity that is not able to reasonably estimate the fair value of its equity
share options and similar instruments because it is not practicable for it to estimate the
expected volatility of its share price shall make a policy choice of whether to measure its
liabilities under share-based payment arrangements at calculated value or at intrinsic
value. An entity can make the accounting policy election in this paragraph, to change its
measurement of all liability-classified awards from fair value to intrinsic value in
accordance with the transition provisionsadoption of ASU 2016-09 in paragraph 145.
For an award that meets the conditions in paragraph 718-10-30- 20B, an nonpublic entity may
make an entity-wide accounting policy election to estimate the expected term using the following
practical expedient:
a.
If vesting is only dependent upon a service condition, an nonpublic entity shall estimate
the expected term as the midpoint between the requisite service period and the
contractual term of the award.
b.
If vesting is dependent upon satisfying a performance condition, an nonpublic entity first
would determine whether the performance condition is probable of being achieved.
i.
If the nonpublic entity concludes that the performance condition is probable of
being achieved, the nonpublic entity shall estimate the expected term as the
midpoint between the requisite service period (a nonpublic entity shall consider
the guidance in paragraphs 718-10-55-69 through 55-79 when determining the
requisite service period of the award) and the contractual term
ii.
If the nonpublic entity concludes that the performance condition is not probable of
being achieved, the nonpublic entity shall estimate the expected term as either:
a.
The contractual term if the service period is implied (that is, the requisite
service period is not explicitly stated but inferred based on the
achievement of the performance condition at some undetermined point in
the future)
b.
The midpoint between the requisite service period and the contractual
term if the requisite service period is stated explicitly.
.
50.
An nonpublic entity that elects to apply the practical expedient in paragraph 48 shall apply the
practical expedient to a share option or similar award that has all of the following characteristics:
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a.
The share option or similar award is granted at the money.
b.
The employee has only a limited time to exercise the award (typically 30–90 days) if the
employee terminates service after vesting.
c.
The employee can only exercise the award. The employee cannot sell or hedge the
award.
d.
The award does not include a market condition.
56.
In some cases, the terms of an award may provide that a performance target that affects vesting
could be achieved after an employee completes the requisite service period. That is, the
employee would be eligible to vest in the award regardless of whether the employee is rendering
service on the date the performance target is achieved. A performance target that affects vesting
and that could be achieved after an employee’s requisite service period shall be accounted for as
a performance condition. As such, the performance target shall not be reflected in estimating the
fair value of the award at the grant date. Compensation cost shall be recognized in the period in
which it becomes probable that the performance target will be achieved and should represent the
compensation cost attributable to the period(s) for which the requisite service already has been
rendered. If the performance target becomes probable of being achieved before the end of the
requisite service period, the remaining unrecognized compensation cost for which requisite
service has not yet been rendered shall be recognized prospectively over the remaining requisite
service period. The total amount of compensation cost recognized during and after the requisite
service period shall reflect the number of awards that are expected to vest based on the
performance target and shall be adjusted to reflect those awards that ultimately vest. An entity
that has an accounting policy to account for forfeitures when they occur in accordance with
paragraph 59 shall reverse compensation cost previously recognized, in the period the award is
forfeited, for an award that is forfeited before completion of the requisite service period. The
requisite service period ends when the employee can cease rendering service and still be eligible
to vest in the award if the performance target is achieved. The stated vesting period (which
includes the period in which the performance target could be achieved) may differ from the
requisite service period.
59.
The total amount of compensation cost recognized at the end of the requisite service period for
an award of share-based compensation shall be based on the number of instruments for which
the requisite service has been rendered (that is, for which the requisite service period has been
completed). Previously recognized compensation cost shall not be reversed if an employee share
option (or share unit) for which the requisite service has been rendered expires unexercised (or
unconverted). To determine the amount of compensation cost to be recognized in each period, an
entity shall make an entity-wide accounting policy election for all share-based payment awards to
do either of the following:
a.
Estimate the number of awards for which the requisite service will not be rendered (that
is, estimate the number of forfeitures expected to occur). The entity shall base initial
accruals of compensation cost on the estimated number of instruments for which the
requisite service is expected to be rendered. The entity shall revise that estimate if
subsequent information indicates that the actual number of instruments is likely to differ
from previous estimates. The cumulative effect on current and prior periods of a change
in the estimated number of instruments for which the requisite service is expected to be
or has been rendered shall be recognized in compensation cost in the period of the
change.
b.
Recognize the effect of awards for which the requisite service is not rendered when the
award is forfeited (that is, recognize the effect of forfeitures in compensation cost when
they occur). Previously recognized compensation cost for an award shall be reversed in
the period that the award is forfeited.
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74.
An entity that has an accounting policy to account for forfeitures when they occur in accordance
with paragraph 59 shall assess at the date of the modification whether the performance or service
conditions of the original award are expected to be satisfied when measuring the effects of the
modification in accordance with paragraph 59. However, the entity shall apply its accounting
policy to account for forfeitures when they occur when subsequently accounting for the modified
award.
SSAP No. 104R - Appendix B
1.e.
For fully vested share options (or share units) and share options expected to vest (or unvested
shares for which the requisite service period has not been rendered but that are expected to vest
based on the achievement of a performance condition, if an entity accounts for forfeitures when
they occur in accordance with paragraph 59) at the date of the latest statement of financial
position, both of the following:
i.
The number, weighted-average exercise price (or conversion ratio), aggregate intrinsic
value, and weighted-average remaining contractual term of options (or share units)
outstanding, and
ii.
The number, weighted-average exercise price (or conversion ratio), aggregate intrinsic
value, and weighted-average remaining contractual term of options (or share units)
currently exercisable (or convertible).
1.j.
If not separately disclosed elsewhere, the amount of cash received from exercise of share options and
similar instruments granted under share based payment arrangements and the tax benefit from stock
options exercised during the annual period.
1.m.
If not separately disclosed elsewhere, the policy for estimating expected forfeitures or recognizing
forfeitures as they occur.
144.
This statement adopts ASU 2014-12, Compensation – Stock Compensation, Accounting for
Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be
Achieved after the Requisite Service Period (ASU 2014-12) with an effective date of January 1, 2016,
with early adoption permitted. ASU 2014-12 allows prospective or retrospective adoption based on the
election of the reporting entity. This election is adopted for statutory financial statements; however,
reporting entities shall follow the approach used when completing their GAAP financials (if applicable).
The disclosures in SSAP No. 3—Accounting Changes and Corrections of Errors shall be completed in the
first interim and annual reporting period of adoption.
145
This statement adopts with modification ASU 2016-09: Improvements to Employee Share-Based
Payment Accounting with an effective date of December 15, 2017, with early adoption permitted. The
modifications are consistent with those adopted for FASB Codification 718, as reflected in paragraph 146.
This adoption with modification encompasses the entire ASU 2016-09, but only revisions to sections
previously captured in this statement have been reflected. (For example, the adoption with modification
includes the related implementation guidance but the implementation guidance is not reflected within this
standard.) ASU 2016-09 provides transition guidance separate for each amendment, either prospective,
retrospective, or modified retrospective basis. These transition provisions are not duplicated in this SSAP,
as reporting entities shall follow the approach utilized when completing their U.S. GAAP financials.
Consistent with the U.S. GAAP guidance, this involves, in some situations, allowing reporting entities an
election of the transition method. The disclosures in SSAP No. 3—Accounting Changes and Corrections
of Errors shall be completed in the first interim and annual reporting period of adoption.
146.
This statement adopts with modification GAAP guidance regarding stock options and stock
purchase plans reflected in Topic 718: Compensation – Stock Compensation, as amended by ASU 201013, Compensation – Stock Compensation (Topic 18): Effect of Denominating the Exercise Price of a
Share-Based Payment Award in the Current of the Market in Which the Underlying Equity Security
Trades, with the exception of FASB Codification Subtopic 718-40: Employee Stock Ownership Plans.
Statutory guidance on employee stock ownership plans is provided in SSAP No. 12—Employee Stock
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Ownership Plans. This adoption with modification includes the related implementation guidance reflected
within the FASB Codification Topic 718, not reflected within this standard. Modifications to the adopted
GAAP guidance are as follows:
a.
GAAP references are revised to reference applicable statutory accounting guidance.
b.
GAAP reporting line items (either explicitly provided in the statement or adopted by
reference – such as the GAAP implementation guidance) shall be replaced to reference
applicable statutory annual statement line items. (For example, GAAP references to
“other comprehensive income” shall be reflected within “Surplus - Unassigned Funds”).
c.
GAAP guidance to calculate earnings per share is not applicable to statutory accounting
and has not been included within the statement.
d.
GAAP effective date and transition, and transition disclosures have not been
incorporated. Reporting entities shall follow the effective date and transition elements
provided within this statement.
e.
Inclusion of guidance specific to statutory for consolidated/holding company plans.
Staff Review Completed by:
Julie Gann – March 2017
Status:
On April 8, 2017, the Statutory Accounting Principles (E) Working Group moved this agenda item to the active
listing, categorized as nonsubstantive, and exposed revisions to SSAP No. 104R as detailed above. Comments are
specifically requested on the proposed transition guidance, which directs reporting entities to follow the approach
utilized for their U.S. GAAP financials, and whether additional transition guidance is needed for companies that
do not file U.S. GAAP financial statements.
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Appendix A – Illustration of GAAP revisions and Proposed Statutory Accounting Changes:
1. Accounting for Income Taxes:
260-10 – Earnings Per Share Overall: These revisions are not applicable to statutory accounting.
718-10 – Compensation – Stock Compensation – Overall: Minor revisions to disclosure, proposed to be incorporated into
Appendix B, of SSAP No. 104R. Other U.S. GAAP revisions are reflected in the implementation guidance and
illustrations, which are not duplicated in SSAP.
SSAP No. 104R - Appendix B
1.j.
If not separately disclosed elsewhere, the amount of cash received from exercise of share options and
similar instruments granted under share based payment arrangements and the tax benefit from stock
options exercised during the annual period.
718-20 – Compensation – Stock Compensation – Awards Classified as Equity: U.S. GAAP revisions are reflected in the
implementation guidance and illustrations, which are captured in the adoption with modification of Topic 718, but are
not duplicated in SAP.
718-30 – Compensation – Stock Compensation – Awards Classified as Liabilities: U.S. GAAP revisions are reflected in
the implementation guidance and illustrations, which are captured in the adoption with modification of Topic 718, but
are not duplicated in SAP.
718-40 – Compensation – Stock Compensation – Employee Stock Ownership Plans: U.S. GAAP revisions are reflected
in the implementation guidance and illustrations, which are captured in the adoption with modification of Topic 718, but
are not duplicated in SAP.
718-740 – Compensation – Stock Compensation – Income Taxes: U.S. GAAP guidance, and related revisions, are
captured in the adoption with modification of Topic 718, but are not duplicated in SAP.
740-10 – Income Taxes Overall: U.S. GAAP guidance, and related revisions, are not in SAP.
740-270 – Income Taxes – Interim Reporting: Although concepts for interim reporting are reflected in SAP, the explicit
paragraphs modified by this ASU are not captured in SAP.
804-740 – Business Combinations – Income Taxes: U.S. GAAP guidance, and related revisions, are not in SAP.
718-10 – Effective Date and Transition: The following new U.S. GAAP guidance is included in the ASU:
An entity shall apply the pending content that links to this paragraph as follows:
1. On a prospective basis for the tax effects of differences recognized on or after the effective date
between the deduction for an award for tax purposes and the cumulative compensation costs of that
award recognized for financial reporting purposes. For purposes of computing diluted earnings per
share, an entity also shall apply the pending content that links to this paragraph to the assumed
proceeds of the treasury stock method on a prospective basis.
2. On a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of
the beginning of the period in which the pending content that links to this paragraph is effective for all
tax benefits that were not previously recognized because the related tax deduction had not reduced
taxes payable. Deferred tax assets recognized as a result of this transition guidance shall be
assessed for realizability in accordance with Topic 740 on income taxes. A valuation allowance
recognized for deferred tax assets recognized as a result of this transition guidance shall be
recognized through a cumulative-effect adjustment to retained earnings.
In the first interim and annual period of adoption, an entity shall disclose both of the following:
1. The nature of and reason for the change in accounting principle
2. The cumulative effect of the change on retained earnings or other components of equity or net assets
in the statement of financial position as of the beginning of the period of adoption.
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2. Classification of Excess Tax Benefits on the Statement of Cash Flows:
230-10 – Statement of Cash Flows Overall: These revisions clarify what is captured in the operating, financing and
investing sections of the Cash Flow statement, and have not been duplicated in SAP.
718-20 – Compensation – Stock Compensation – Awards Classified as Equity: U.S. GAAP revisions are reflected in the
implementation guidance and illustrations, which are captured in the adoption with modification of Topic 718, but are
not duplicated in SAP.
718-10 – Effective Date and Transition: The following new U.S. GAAP guidance is included in the ASU:
An entity shall apply the pending content that links to this paragraph in one of the following two ways:
1. Prospectively
2. Retrospectively to all periods presented.
In the first interim and annual period of adoption, an entity shall disclose the nature of and reason for the
change in accounting principle.
1. An entity that elects to apply the pending content that links to this paragraph prospectively shall
disclose that prior periods have not been adjusted.
2. An entity that elects to apply the pending content that links to this paragraph retrospectively shall
disclose the effect of the change on prior periods retrospectively adjusted.
3. Forfeitures:
260-10 – Earnings Per Share Overall: These revisions are not applicable to statutory accounting.
323-10 – Investments – Equity Method and Joint Ventures Overall – U.S. GAAP revisions are reflected in the
implementation guidance and illustrations, which are not captured in SAP.
718-10 – Compensation – Stock Compensation – Overall: In addition to the revisions to the guidance reflected in SSAP
No. 104R, this section includes revisions to the implementation guidance and illustration, which are considered adopted
with modifications in SSAP No. 104R, but are not duplicated in the SSAP.
Revisions proposed to be captured in SSAP No. 104R:
56.
In some cases, the terms of an award may provide that a performance target that affects vesting
could be achieved after an employee completes the requisite service period. That is, the
employee would be eligible to vest in the award regardless of whether the employee is rendering
service on the date the performance target is achieved. A performance target that affects vesting
and that could be achieved after an employee’s requisite service period shall be accounted for as
a performance condition. As such, the performance target shall not be reflected in estimating the
fair value of the award at the grant date. Compensation cost shall be recognized in the period in
which it becomes probable that the performance target will be achieved and should represent the
compensation cost attributable to the period(s) for which the requisite service already has been
rendered. If the performance target becomes probable of being achieved before the end of the
requisite service period, the remaining unrecognized compensation cost for which requisite
service has not yet been rendered shall be recognized prospectively over the remaining requisite
service period. The total amount of compensation cost recognized during and after the requisite
service period shall reflect the number of awards that are expected to vest based on the
performance target and shall be adjusted to reflect those awards that ultimately vest. An entity
that has an accounting policy to account for forfeitures when they occur in accordance with
paragraph 59 shall reverse compensation cost previously recognized, in the period the award is
forfeited, for an award that is forfeited before completion of the requisite service period. The
requisite service period ends when the employee can cease rendering service and still be eligible
to vest in the award if the performance target is achieved. The stated vesting period (which
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includes the period in which the performance target could be achieved) may differ from the
requisite service period.
59.
The total amount of compensation cost recognized at the end of the requisite service period for
an award of share-based compensation shall be based on the number of instruments for which
the requisite service has been rendered (that is, for which the requisite service period has been
completed). Previously recognized compensation cost shall not be reversed if an employee share
option (or share unit) for which the requisite service has been rendered expires unexercised (or
unconverted). To determine the amount of compensation cost to be recognized in each period, an
entity shall make an entity-wide accounting policy election for all share-based payment awards to
do either of the following:
a.
Estimate the number of awards for which the requisite service will not be rendered (that
is, estimate the number of forfeitures expected to occur). The entity shall base initial
accruals of compensation cost on the estimated number of instruments for which the
requisite service is expected to be rendered. The entity shall revise that estimate if
subsequent information indicates that the actual number of instruments is likely to differ
from previous estimates. The cumulative effect on current and prior periods of a change
in the estimated number of instruments for which the requisite service is expected to be
or has been rendered shall be recognized in compensation cost in the period of the
change.
b.
Recognize the effect of awards for which the requisite service is not rendered when the
award is forfeited (that is, recognize the effect of forfeitures in compensation cost when
they occur). Previously recognized compensation cost for an award shall be reversed in
the period that the award is forfeited.
SSAP No. 104R - Appendix B
1.e.
For fully vested share options (or share units) and share options expected to vest (or unvested
shares for which the requisite service period has not been rendered but that are expected to vest
based on the achievement of a performance condition, if an entity accounts for forfeitures when
they occur in accordance with paragraph 59) at the date of the latest statement of financial
position, both of the following:
iii.
The number, weighted-average exercise price (or conversion ratio), aggregate intrinsic
value, and weighted-average remaining contractual term of options (or share units)
outstanding, and
iv.
The number, weighted-average exercise price (or conversion ratio), aggregate intrinsic
value, and weighted-average remaining contractual term of options (or share units)
currently exercisable (or convertible).
New Paragraph 1m in Appendix B:
1.m.
If not separately disclosed elsewhere, the policy for estimating expected forfeitures or recognizing
forfeitures as they occur.
718-20 – Compensation – Stock Compensation – Awards Classified as Equity: In addition to the revisions to the
guidance reflected in SSAP No. 104R, this section includes revisions to the implementation guidance and illustration,
which are considered adopted with modifications in SSAP No. 104R, but are not duplicated in the SSAP.
New Paragraph 74: All Other Paragraphs Renumbered Accordingly.
74.
An entity that has an accounting policy to account for forfeitures when they occur in accordance
with paragraph 59 shall assess at the date of the modification whether the performance or service
conditions of the original award are expected to be satisfied when measuring the effects of the
modification in accordance with paragraph 59. However, the entity shall apply its accounting
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policy to account for forfeitures when they occur when subsequently accounting for the modified
award.
718-30 – Compensation – Stock Compensation – Awards Classified as Liabilities: U.S. GAAP revisions are reflected in
the implementation guidance and illustrations, which are captured in the adoption with modification of Topic 718, but
are not duplicated in SAP.
805-30 – Business Combination – Goodwill or Gain from Bargain Purchase, Including Consideration Transferred: U.S.
GAAP revisions are reflected in the implementation guidance and illustrations which are not reflected in SAP.
718-10 – Effective Date and Transition: The following new U.S. GAAP guidance is included in the ASU:
An entity shall apply the pending content that links to this paragraph as follows:
An entity shall apply the pending content that links to this paragraph on a modified retrospective basis
through a cumulative-effect adjustment to retained earnings as of the beginning of the period in which the
pending content that is linked to this paragraph is effective.
In the first interim and annual period of adoption, an entity shall disclose both of the following:
1. The nature of and reason for the change in accounting principle
2. The cumulative effect of the change on retained earnings or other components of equity or net assets
in the statement of financial position as of the beginning of the period of adoption.
4. Minimum Statutory Tax Withholding Requirements:
718-10 – Compensation – Stock Compensation – Overall: In addition to the revisions to the guidance reflected in SSAP
No. 104R, this section includes revisions to the implementation guidance and illustration, which are considered adopted
with modifications in SSAP No. 104R, but are not duplicated in the SSAP.
15.
Paragraphs 14-27, provide guidance for determining whether certain financial instruments
awarded in share-based payment transactions are liabilities. In determining whether an
instrument not specifically discussed in those paragraphs shall be classified as a liability or as
equity, an entity shall apply statutory accounting principles applicable to financial instruments
issued in transactions not involving share-based payment.
26.
Similarly, a provision for either direct or indirect (through a net-settlement feature) repurchase of
shares issued upon exercise of options (or the vesting of nonvested shares), with any payment
due employees withheld to meet the employer’s statutory withholding requirements resulting from
the exercise, does not, by itself, result in liability classification of instruments that otherwise would
be classified as equity. However, if the amount that is withheld, or may be withheld at the
employer’s discretion, in excess of the maximum statutory tax rates in the employee’s applicable
jurisdictions, the entire award shall be classified and accounted for as a liability. That is, to qualify
for equity classification, the employer must have a statutory obligation to withhold taxes on the
employee’s behalf, and the amount withheld cannot exceed the maximum statutory tax rates in
the employees’ applicable jurisdictions. The maximum statutory tax rates are based on the
applicable rates of the relevant tax authorities (for example, federal, state, and local), including
the employee’s share of payroll or similar taxes, as provided in tax law, regulations, or the
authority’s administrative practices, not to exceed the highest statutory rate in that jurisdiction,
even if that rate exceeds the highest rate that may be applicable to the specific award grantee.
27.
718-10 – Effective Date and Transition: The following new U.S. GAAP guidance is included in the ASU:
An entity shall apply the pending content that links to this paragraph as follows:
An entity shall apply the pending content that links to this paragraph on a modified retrospective basis
through a cumulative-effect adjustment to retained earnings as of the beginning of the period in which the
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pending content that links to this paragraph is effective. When determining the cumulative-effect
adjustment, an entity shall assess only liability classified awards that have not been settled by the
effective date.
In the first interim and annual period of adoption, an entity shall disclose both of the following:
1. The nature of and reason for the change in accounting principle
2. The cumulative effect of the change on retained earnings or other components of equity or net assets
in the statement of financial position as of the beginning of the period of adoption.
5. Classification of Employee Taxes Paid on the Statement of Cash Flows When an Employer Withholds Shares
for Tax-Withholding Purposes:
230-10 – Statement of Cash Flows Overall: These revisions clarify what is captured in the operating, financing and
investing sections of the Cash Flow statement, and have not been duplicated in SAP.
718-10 – Compensation – Stock Compensation – Overall: U.S. GAAP revisions to this section provide a reference to the
revisions in 230-10 prescribing treatment in the statement of cash flows. Rather than refer to another section, revisions
have been proposed to capture the entire guidance in SSAP No. 104R:
27.
Cash paid to a tax authority by an employer when withholding shares from an employee’s award
for tax-withholding purposes shall be considered cash flows from financing activities in the
Statement of Cash Flows as it represents an outlay to reacquire the entity’s equity instruments.
718-10 – Effective Date and Transition: The following new U.S. GAAP guidance is included in the ASU:
An entity shall apply the pending content that links to this paragraph as follows:
An entity shall apply the pending content that links to this paragraph retrospectively to all periods
presented.
In the first interim and annual period of adoption, an entity shall disclose the nature of and reason for the
change in accounting principle and the effect of the change on prior periods retrospectively adjusted..
6. Practical Expedient – Expected Term
718-10 – Compensation – Stock Compensation – Overall: U.S. GAAP revisions are specific to nonpublic entities,
however, the prior guidance in SSAP No. 104R adopted the provisions for all entities. As such, the revisions are
proposed to be captured in SSAP No. 104R for all entities:
Staff Note – The strikeouts reflect proposed revisions from GAAP. Also, references to implementation guidance have
been stricken as that guidance is captured as adopted with modification, but not duplicated in SAP. Also, new
implementation guidance for these revisions is not proposed to be duplicated in the SSAP.
Calculated Value for Entities Not Reasonably Able to Estimate Fair Value
48.
An entity may not be able to reasonably estimate the fair value of its equity share options and
similar instruments because it is not practicable for it to estimate the expected volatility of its
share price. In that situation, the entity shall account for its equity share options and similar
instruments based on a value calculated using the historical volatility of an appropriate industry
sector index instead of the expected volatility of the entity’s share price (the calculated value).
Throughout the remainder of this statement, provisions that apply to accounting for share options
and similar instruments at fair value also apply to calculated value.
49.
For an award that meets the conditions in paragraph 718-10-30- 20B, an nonpublic entity may
make an entity-wide accounting policy election to estimate the expected term using the following
practical expedient:
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a.
If vesting is only dependent upon a service condition, an nonpublic entity shall estimate
the expected term as the midpoint between the requisite service period and the
contractual term of the award.
b.
If vesting is dependent upon satisfying a performance condition, an nonpublic entity first
would determine whether the performance condition is probable of being achieved.
i.
If the nonpublic entity concludes that the performance condition is probable of
being achieved, the nonpublic entity shall estimate the expected term as the
midpoint between the requisite service period (a nonpublic entity shall consider
the guidance in paragraphs 718-10-55-69 through 55-79 when determining the
requisite service period of the award) and the contractual term
ii.
If the nonpublic entity concludes that the performance condition is not probable of
being achieved, the nonpublic entity shall estimate the expected term as either:
a.
The contractual term if the service period is implied (that is, the requisite
service period is not explicitly stated but inferred based on the
achievement of the performance condition at some undetermined point in
the future)
b.
The midpoint between the requisite service period and the contractual
term if the requisite service period is stated explicitly.
.
50.
An nonpublic entity that elects to apply the practical expedient in paragraph 48 shall apply the
practical expedient to a share option or similar award that has all of the following characteristics:
a.
The share option or similar award is granted at the money.
b.
The employee has only a limited time to exercise the award (typically 30–90 days) if the
employee terminates service after vesting.
c.
The employee can only exercise the award. The employee cannot sell or hedge the
award.
d.
The award does not include a market condition.
718-10 – Effective Date and Transition: The following new U.S. GAAP guidance is included in the ASU:
An entity shall apply the pending content that links to this paragraph as follows:
An entity that elects the practical expedient to determine the expected term of an award shall apply the
pending content that links to this paragraph prospectively (that is, apply the practical expedient to all
awards that are measured at fair value after the effective date).
In the first interim and annual period of adoption, an entity shall disclose the nature of and reason for the
change in accounting principle.
7. Intrinsic Value
718-30 – Compensation – Stock Compensation – Awards Classified as Liabilities: U.S. GAAP revisions are specific to
nonpublic entities, however, the prior guidance in SSAP No. 104R adopted the provisions for all entities. As such, the
revisions are proposed to be captured in SSAP No. 104R for all entities:
Measurement Objective – Fair Value at Grant Date
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36.
The measurement objective for equity instruments awarded to employees is to estimate the fair
value at the grant date of the equity instruments that the entity is obligated to issue when employees have
rendered the requisite service and satisfied any other conditions necessary to earn the right to benefit
from the instruments (for example, to exercise share options). That estimate is based on the share price
and other pertinent factors, such as expected volatility, at the grant date. The following subparagraphs
provide guidance regarding the measurement objective and measurement date for liability instruments:
a.
Measurement Objective and Measurement Date for Liabilities: At the grant date, the
measurement objective for liabilities incurred under share-based compensation
arrangements is the same as the measurement objective for equity instruments awarded
to employees as described in paragraph 36. However, the measurement date for liability
instruments is the date of settlement.
b.
Measurement Objective and Measurement Date for Liabilities of Entities Subject to
Paragraph 48: An entity subject to paragraph 48 shall make a policy decision of whether
to measure all of its liabilities incurred under share-based payment arrangements at fair
value or to measure all such liabilities at intrinsic value. Consistent with the guidance in
paragraph 48, an entity that is not able to reasonably estimate the fair value of its equity
share options and similar instruments because it is not practicable for it to estimate the
expected volatility of its share price shall make a policy choice of whether to measure its
liabilities under share-based payment arrangements at calculated value or at intrinsic
value. An entity can make the accounting policy election in this paragraph, to change its
measurement of all liability-classified awards from fair value to intrinsic value in
accordance with the transition provisions adoption of ASU 2016-09 in paragraph 145.
718-10 – Effective Date and Transition: The following new U.S. GAAP guidance is included in the ASU:
An entity shall apply the pending content that links to this paragraph as follows:
A nonpublic entity shall apply the pending content that links to this paragraph on a modified
retrospective basis through a cumulative-effect adjustment to retained earnings as of the
beginning of the period in which the pending content that links to this paragraph is effective by
adjusting the carrying amount of liability-classified awards that have not been settled as of the
effective date from fair value to intrinsic value.
In the first interim and annual period of adoption, a nonpublic entity shall disclose:
1. The nature of and reason for the change in accounting principle
2. The cumulative effect of the change on retained earnings or other components of equity or net
assets in the statement of financial position as of the beginning of the period of adoption.
8. Eliminating the Indefinite Deferral in Topic 718
718-10 – Compensation – Stock Compensation – Overall: The U.S. GAAP guidance deleted in this section (718-10-3513) was not previously captured within SAP.
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