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Journal entry — FASB discusses share-based payment accounting for private companies

Published on: Dec 19, 2014

At its meeting this week, the FASB made tentative decisions about several practical expedients that may be extended to private companies to simplify the accounting for share-based payment awards. The FASB’s decisions were related to (1) estimating the expected term of an award, (2) classifying awards with repurchase features, (3) allowing entities to elect to use the intrinsic value method to measure awards classified as liabilities, (4) confirming the scope of the existing and proposed practical expedients, and (5) simplifying the ASC 7181 disclosures.

Expected Term

The Board decided to allow private companies to use the simplified method[2] to estimate the expected term for (1) awards with only service conditions and (2) awards with performance conditions when it is probable that the performance conditions (or performance conditions together with service conditions) will be met. If it is not probable that an award’s performance conditions will be met, private entities applying the practicable expedient would use the award’s contractual term as the estimate for the expected term.

Classification of Awards With Repurchase Features

To eliminate diversity in practice (for all entities) related to the classification of awards with repurchase features, the Board decided to align the classification guidance on put and call rights that are contingent on an event that is within an employee’s control. Accordingly, entities would assess the probability of the occurrence of the contingent event to determine whether to classify the award as an equity or liability award (i.e., if it is not probable that the contingent event will occur, the award would be classified as an equity award provided that all other equity classification criteria are met, and if it is probable that the contingent event will occur, the award would be classified as a liability award).

Measurement of Awards at Intrinsic Value

The Board agreed to let private companies make a one-time election to switch from fair value to intrinsic value measurement for share-based payment awards classified as liabilities. The Board will make a decision on the timing of the change (e.g., upon an entity’s adoption of the guidance in the FASB’s forthcoming ASU related to this project or over a limited period) at a future meeting. In response to the Private Company Council’s suggestion to classify all private-company share-based payment awards as liabilities and to measure the liabilities at intrinsic value, the Board directed the staff to perform research and assess whether private companies would broadly favor such classification and measurement.

Scope of the Existing and Proposed Practical Expedients in ASC 718

The Board decided that entities that meet the current definition in ASC 718 of a “public entity” rather than the definition of a “public business entity” in the FASB Accounting Standards Codification Master Glossary may not apply the existing ASC 718 practical expedients and proposed practical expedients. However, to avoid confusion and reduce the number of definitions of a public entity in U.S. GAAP, the Board directed the staff to eliminate the definition of a public entity in ASC 718 but retain the concept of a public entity in ASC 718-10-15 (the scope section), which would achieve the same result as retaining the definition of a public entity in ASC 718.


The Board indicated that it will consider simplifying the ASC 718 disclosures for both public and private companies as part of its disclosure framework project after the four current projects related to fair value measurements, defined benefit plans, income taxes, and inventory are completed.


1 For titles of FASB Accounting Standards Codification (ASC) references, see Deloitte’s “Titles of Topics and Subtopics in the FASB Accounting Standards Codification.”

2 Question 6 of SEC Staff Accounting Bulletin (SAB) Topic 14.D.2, “Expected Term,” outlines a simplified method of estimating the expected term to be the midpoint between the vesting term and the contractual term (i.e., the expected term = ((vesting term + original contractual term) ÷ 2).

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