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Proposed Expansion of Stock-Compensation Standard Due in Third Quarter

The FASB plans to release in the next few months a proposed expansion of its standard for stock compensation to include payments to nonmployees as well as employees. The upcoming proposal is being planned as part of the board’s Simplification Initiative, which is an effort to clarify narrow parts of U.S. GAAP and offer quick solutions.

The FASB expects to release in the third quarter of 2016 a proposed expansion of its standard for stock compensation to include payments to nonmployees as well as employees, according to a spokesperson for the accounting board.

The board put itself in position to release the proposal following a series of decisions about the guidance for making the transition to the amended standard at its June 15, 2016, meeting. The board’s members agreed with a staff recommendation to rely on what is called a “modified retrospective” transition, which means that retained earnings and additional paid-in capital will be adjusted in the first quarterly period the accounting changes are adopted. But results from prior reporting periods will not be adjusted.

The most recent decisions follow from a series of decisions the board agreed to in May when it settled on the expanded scope of Topic 718, Compensation—Stock Compensation .

Shayne Kuhaneck, the project manager for the FASB staffers writing the proposal, said the staff preferred the modified retrospective approach because it will save the companies that adopt the new accounting an extensive amount of work. Companies will not have to carry out all the adjustments normally needed for a full retrospective transition. Still the modified approach is expected to give investors an opportunity to study the effect the accounting changes will have on a company’s performance. The stock compensation guidance applies to a range of financial instruments, such as common stock, hybrid instruments, and preferred shares, and the staff believed the variety of instruments involved would lead to an unusually large amount of work if companies had to revise their results in prior reporting periods.

Board members agreed with the staff’s recommendations but also asked for the insertion of some questions into the proposal to ensure that there was a clear debate about the changes.

FASB Vice Chairman James Kroeker wanted a question inserted about differences in the timing of the grant date and the date on which the goods are delivered or services or provided and how that might affect the reported balances from prior periods.

The plan to amend the accounting guidance for stock compensation is part of the FASB’s Simplification Initiative, which is an effort to clarify narrow parts of U.S. GAAP and offer quick solutions.

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