Handbook: Accounting for Share-Based Payments

Share-Based Payment

Handbook

US GAAP

March 2019 us/frv

Share-Based Payment

We gratefully acknowledge our technical team in KPMG's Audit Quality and Professional Practice Group as primary authors of this book. Regina Croucher and Daniel Zamora led the efforts, with significant contributions from Paul Munter.

The Financial Accounting Standards Board (FASB) material is copyrighted by the Financial Accounting Foundation (FAF), 401 Merritt 7, PO Box 5116, Norwalk, CT 06856-5116, USA, and is reproduced with permission.

All information provided is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that that information is accurate as of the date it is received, or that it will continue to be accurate in the future. No one should act on that information without appropriate professional advice after a thorough examination of the particular situation.

Contents

Preface ........................................................................................................................................ 1 Executive Summary .................................................................................................................... 4 1. Scope .................................................................................................................................... 12 2. Measurement of Awards ...................................................................................................... 46 3. Classification of Awards as Either Liabilities or Equity ...................................................... 130 4. Recognition of Compensation Costs .................................................................................. 200 5. Modification of Awards ....................................................................................................... 313 6. Income Tax Issues Associated with Share-Based Payment Arrangements ...................... 383 7. Disclosures and Earnings per Share ................................................................................. 384 8. Transition and Effective Dates ........................................................................................... 400 9. Business Combinations ...................................................................................................... 410 10. Equity-Based Transactions with Nonemployees ............................................................. 411 11. Employee Stock Purchase Plans ...................................................................................... 412 Appendix I ............................................................................................................................... 431

Preface

We are pleased to provide you with our 2019 edition of Share-Based Payment. This book is designed to assist companies and others in understanding the application of FASB ASC Topic 718, Compensation--Stock Compensation.

Excerpts of ASC Topic 718, Compensation--Stock Compensation, and ASC Subtopic 505-50, Equity ? Equity-Based Payments to Non-Employees, copyright by the Financial Accounting Foundation, 401 Merritt 7, P.O. Box 5116, Norwalk, Connecticut 068565116, are included in this work by permission. In addition to the excerpts, this book provides interpretative guidance, illustrative examples, and questions and answers. This publication represents our current interpretation as of the date of this publication. Our interpretation may be affected by future guidance issued by the FASB or its staff, or others involved in the standard-setting process.

This edition has been updated to include our latest guidance on common practice issues and to provide our interpretive guidance on the requirements of ASU 2018-07, Compensation-Stock Compensation (Topic 718) Improvements to Nonemployee ShareBased Payment Accounting, (ASU 2018-07). This edition has not been updated to reflect the FASB's exposure draft and ongoing project to clarify the guidance on measuring share-based payments to a customer. Users of this handbook are encouraged to monitor the status of the FASB project; however, we do not expect the project to have a significant effect for entities that have not yet adopted ASU 2018-07 or for those that do not have master servicing arrangements.

ASU 2018-07 provides simplification improvements by expanding the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees, and supersedes Subtopic 505-50. Under ASU 2018-07, an entity must apply the requirements of Topic 718 to nonemployee share-based payment transactions. The accounting for employee and nonemployee share-based payment transactions is largely similar, as a result of ASU 2018-07, except for nonemployee awards for which there is specific guidance on certain inputs for valuing options and differences in the attribution of cost (i.e., the period of time over which share-based payment awards vest and the pattern of cost recognition over that period).

This publication has been updated for the changes to ASC Topic 718 as a result of ASU 2018-07 and the transition guidance is covered in Section 8, Transition and Effective Dates. In addition, the previously published Section 10, Equity-Based Transactions with Nonemployees, was moved to the Appendix of our Handbook. For companies that have yet to adopt ASU 2018-07, reference to this section in the Appendix will apply to nonemployee share-based payment arrangements under Subtopic 505-50.

In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718) Scope of Modification Accounting, (ASU 2017-09) to provide clarity and reduce diversity in practice when applying the award modification guidance, i.e., when there is a change to the terms or conditions of a share-based payment award. This publication has previously been updated for the changes to ASC Topic 718 as a result of ASU 2017-09 and the transition guidance is covered in Section 8, Transition and Effective Dates.

? 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent

1

member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.

Preface

On July 1, 2009, the FASB issued the FASB Accounting Standards Codification? (ASC), which became the single source of authoritative, nongovernmental U.S. GAAP, except for rules and interpretive releases of the SEC. The FASB no longer issues new authoritative standards but instead issues Accounting Standards Updates (ASUs) that provide amendments and updates to the ASC as well as the basis for conclusions regarding the change in the Codification.

The Codification project's intention was to retain existing U.S. GAAP. The Codification includes previous level A-D GAAP, and excludes nonessential material such as much of the information contained in the Basis for Conclusions.

Accordingly, this book includes references to pre-Codification standards (e.g., Statement 123). As the FASB did not codify most of the Basis for Conclusions, which is cited in this book, references to those paragraphs do not contain an ASC reference.

In 2019, in addition to updating the overall handbook to reflect ASU 2018-07, including additional transition guidance in Section 8, we also have updated or added the following guidance to this handbook.

Topic

Reference

Change in grantee status

1.021 Examples 1.1a 1.1b 1.1c

Expected volatility

2.051

Valuation impact of secondary market transactions

Q&A 2.14a

Assessment of all the rights and obligations in a share- 3.022 based payment arrangement

Callable arrangements

3.036

FASB illustrative example ? Case B: Phantom shares of 3.049 share options

Profits interest units with contingent put feature

Q&A 3.35

Contingently cash settleable awards

3.099

Awards containing a contingent repurchase feature

Example 3.22.1

Effect of discretionary clause on clawback feature

Q&A 4.5a

Share option awards granted to retirement-eligible employees with a service and performance condition

Example 4.11a

? 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent

2

member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.

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