The Financial Accounting Standard Board has issued a new standard to simplify accounting for share-based payments, and also voted to let companies choose how they implement hedge accounting changes.

Share-based payment accounting to be less complex

On 30 March, the Financial Accounting Standard Board (FASB) issued a new standard designed to make accounting for share-based payment transactions less complex for public and private companies.

The Accounting Standards Update (ASU) is No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. It will affect companies that issue share-based payments to their employees and will simplify accounting in the areas of income tax; classification of awards as either equity or liabilities; and classification on the statement of cash flows.

Accounting for employee share-based awards is unnecessarily complex for both private and public companies. Early adoption is permitted and the update will take effect for public companies from 15 December 2016 and for private companies from 15 December 2017.

Companies to choose how to implement hedge accounting changes

The FASB also announced that companies will be able to choose which method they use to implement planned hedge accounting changes. The new rules are intended to streamline complex rules focusing on derivatives used to counter risk of loss. The board voted last week to allow companies to use either a “modified retrospective” approach or a “full retrospective” approach when applying the future accounting standards update.

The FASB also voted for early adoption, allowing companies to apply the new rules at the start of any fiscal period, even though the standard's effective date has not yet been announced.