Get the low-down on the new ASC 718 with FASB, PwC and Solium
Looking for unique insights on the Accounting Simplification Updates to ASC 718? Look no further. Presented on April 12, 2016, this webinar features Mark Barton of FASB, and Ken Stoler of PwC! Fresh from his time directly on the ASU project, Mark shares insights from inside the FASB walls while Ken and Michael discuss the practical realities of the new normal.
Q: Can you adopt at inception of the company if you have never issued financial statements?
A: Yes, and since this is a first time adoption there is no “transition” you need to worry about.
Q: Early adoption in Q2’16 – how about 3-month P&L for Q2’16? will only include three-month impact or year-to-date from 1/1/16?
A: The 3-month P&L will only include 3 month impact. But Q1’16 P&L would need to be retrospectively adjusted to reflect adoption as if it had been done of first day of fiscal year.
Q: Would one of the presenters give an example of the required adoption date for non-calendar fiscal year companies?
A: So, let’s assume a public company with a Sept 30 year end. The ASU is required to be adopted for public companies for fiscal years beginning on or after 12/15/16. The first fiscal year that starts after 12/15/16 for this company is the one that begins 10/1/17 (ending 9/30/18), so this is the period in which adoption would be required. (The Q1 interim period ending 12/31/17 to be precise).
Q: Assuming the plan agreement allows it, can a company elect to withhold shares (or sell to cover) more than the minimum statutory rate for certain employees?
A: Yes. Under the amendment, withholding up to maximum rate for individual in the jurisdiction is ok. The rate need not be the same for all employees. (And with sell to cover, you are permitted to withhold more than the max if desired).
Q: Does “discrete item” mean that it should reported on its own line in the P&L OR just included in a separate line in the ETR reconciliation, etc.?
A: “Discrete” means the impact should be recognized in the period of the taxing event, rather than forecasting and building into estimated ETR in earlier periods.
Q: What are the ramifications of withholding shares for netting/paying in federal taxes for outside directors? The directors get ~ 10-15% of all restricted stock granted/year.
A: Assuming the outside directors are treated as employees for purposes of ASC 718, the withholding rules would be the same.
Q: Regarding share withholding, does the new standard allow us to withhold at any maximum individual tax rate (i.e. a free pass for excess withholding), or do IRS regulations still apply?
A: The new standard only dictates the book accounting for your stock comp plans. You should still ensure you are complying with any relevant IRS regs or the rules of any other jurisdictions (states, foreign jurisdictions, etc.).
Q: We keep hearing about applying liability accounting to equity awards, but can’t seem to figure out where to find the details of applying the liability method.
A: Feel free to consult with the PwC’s Stock-Based Compensation guide. Section 1.12 addresses accounting for liability awards.
Q: If excess tax benefits had been recognized though APIC in prior periods, did I understand you to say that we would not need to adjust? (So not need to restate Retained Earnings to show RE as if the benefit had been recognized as income last year)?
A: Correct – there is no adjustment to the amounts previously recognized in APIC. This is because the transition provision for this part of the ASU is “prospective”. But going forward, the windfalls/shortfalls will be recognized in tax expense.
Q: Will the prior year tax footnote have to be changed if it omitted the excess tax benefit not recognized (which will be recognized now)?
A: Since this is aspect of the amendments represents a modified retrospective transition, prior periods do not need to be recast. Likewise in the footnote, no adjustment to prior year amounts is necessary. The effect is recognized as a cumulative adjustment at the beginning of the current fiscal year.
Q: When booking the JE to retained earnings for elimination forfeitures, the other side of the entry goes to APIC, right?
A: That’s right. Basically increasing the amount that would have been recognized as comp expense (with credits to APIC) in prior years as if the new rules had always been in effect.
Q: On Forfeiture… Can we continue to estimate and true-up or will we have to change to actual forfeitures?
A: You can continue to estimate and true up (i.e., – your current approach). But bear in mind this is a policy you are electing upon adoption of the new rules, so any future change would be considered a change in accounting principle requiring preferability assessment, retrospective application, etc.
Q: Is there more context as to why the windfall tax benefit is removed from the assumed proceeds, other than the APIC pool no longer being required? Is it also due to the fact we take a benefit in the P&L and take credit in the period in which the awards vest, therefore, we wouldn’t have to account for any future windfalls in the assumed proceeds in the EPS calculation?
A: You are spot on. Since windfalls are now recognized in P&L, it would in effect be double counting to also take credit in assumed proceeds.
Learn more about ASC 718.