Accounting for Stock Compensation: 5 Things You Need to Know transcript Heather Horn:Hello, welcome to PwC's Accounting and Reporting podcast series. Our mission is to inform and educate accountants and other stakeholders on today's hottest accounting issues. I am Heather Horn, a partner in our national office and I will be your host today. Today's podcast will focus on five things you need to know about accounting for stock-based compensation. The FASB tried to simplify accounting for stock-based awards in recent years including issuance of an ASU last summer that aligned the accounting for employee and nonemployee awards, but it remains one of the more complex counting areas. So we thought it would be helpful to discuss some basic concepts and some specific areas to look out for. Joining me today in the studio is Nicole Berman, a director in our national office who assists our clients and engagement teams with understanding accounting for these types of arrangements. Before we jump into our detailed topic for today, I think one thing that might be helpful for our listeners is just to understand the scope—when we say stock-based compensation, what are we even talking about? Nicole Berman:Sure, so stock-based compensation under ASC-718 is any time that the company gets goods or services and gives either shares or has a liability based on the value of shares, and that all then falls in the scope of 718, so that is for any type of award. It actually even also covers any time a shareholder or a parent company gives awards to your employee for their service or pays for awards on your behalf. Those are called economic interest holders, and any time the company gets goods or services and shares or liability to the value of a share is given, that falls under the scope of 718. Heather:So you are saying og I am a subsidiary of the company and—or doing the accounting for a subsidiary of a company and the parent company is giving shares to my employees than I would need to include that in the financial statements of that stand-alone subsidiary? Nicole:That's right. Heather:Okay, and then Nicole one other thing on scope (and I mentioned this in the intro) I know that last year the FASB actually issued an ASU that it was intended to simplify things, so I know we used to have a much different model between awards to nonemployees and awards to employees, so can you talk a little bit about what changed? Nicole:The fast be basically aligned, in general, the accounting for both nonemployee and employee awards are all now going to be under the scope of 718. There are only a couple of really minor nuances that remain. We can hit a couple of those later, but in general the accounting is now consistent between employee and nonemployee awards. And I think you mentioned that it used to be more difficult under the nonemployee guidance. There was typically some mark-to-market accounting and you might not even account for something—and award with a performance condition—until later, so those things will go away, and I think we might see some more nonemployee awards in the future. Heather:So what then is the timing for adoption of the new ASU? Nicole:It is early adoptable for everyone; it is effective for public business entities for 2019 and one year later for nonpublic. Heather:Oh, so for q.when, anyone issuing these nonemployee awards will need to be focused on this—any PVs. Nicole:Right.
2/9/22, 8:23 PMUNR Accounting for Stock Compensation transcript https://webcampus.unr.edu/courses/80067/files/8611712?wrap=1&fd_cookie_set=12/5Heather:All right, very good. With that then let's jump into our five topics for the day. I think first thing when we start to talk about the complexity of stock-based compensation, I know that sort of step one is determining the grant date and that is fundamental to getting the right accounting. Can you help us level set, and I guess remind us what we mean by the term grant date and then why it is so important? Nicole:Sure, so we are starting with the grant date because that is the date that all of the accounting begins, so we wanted to start with that because that is when we start accounting for an award when we have a grant date. The accounting guidance tells you that that happens when awards are approved, there is a mutual understanding of the key terms and conditions, the company is contingently obligated to issue the shares or transfer assets if the vesting conditions are met, and the holder benefits from or is adversely affected by changes in the stock price, and so when those four conditions are met you have a grant date and you begin accounting for a stock-based comp award. Heather:So you used the word "contingently" obligated, and I know that contingencies have different meanings in GAAP, so what do we mean when we use that term in this context? Nicole:In this context it really just means the company has to give the shares if the holder of the award does what is required, so if they provide the service that is needed the company has to give the shares they are obligated. Heather:At that point, so then I guess as you are thinking about grant date, it feels like there are a lot of places where things could almost "go wrong," so what would you say is tricky about this accounting? Nicole:Sure, the first thing I think about our awards that have multi-year awards when maybe you have an award that is going to be earned based on a budget that is set for next year. I mentioned one criteria is the mutual understanding of the key terms and conditions. That has to be met, so if you haven't even set the budget for next year you might not have that mutual understanding of the key terms and conditions for a multi-year award, so you might have a grant date for the first year of that award but years two and three, the holder doesn't know what needs to happen to earn that award so you don't have that mutual understanding and you don't start any accounting for years two and three. Heather:So then the grant date for those are words would occur whenever those additional—that additional information is known and met, is that right? Nicole:That's right, yeah. Heather:Okay, what else the grant date should people be thinking about? Nicole:The other thing that comes up is discretion, so if the company has the ability to make changes to the criteria in the future or the terms are really vague and that means that then the holder doesn't really know what they have to do, what has to happen, to earn that award—that is all sort of discretion, and when we see any kind of discretion it sometimes can harm whether you have a grant date or not. Heather:So it sounds like if I am thinking about grant date and particularly if I am the one doing the accounting, then I really almost need to—it's more than just "Oh, we gave an employee or a third-party a piece of paper that said we're going to give you some awards." We really have to make sure all of these conditions are met in order for them to have a claim and for us to have an obligation where we are reporting for it. Nicole:That's right. You have to follow those criteria. The award agreement might say "the grant date is [on a particular date]" but it really depends on whether you meet the accounting—
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