As a reminder, ASU 2016-09 Compensation – Stock Compensation will go into effect for all companies beginning with annual periods subsequent to December 15, 2017. The most impactful changes of the new standard will affect the accounting for income taxes related to stock awards, as well as providing two accounting policy-change elections to nonpublic entities. Some of the changes are summarized below.

Currently, excess tax benefits or deficiencies resulting from stock awards will be recognized either in capital or as an offset to a tax benefit account. The new standard requires all excess tax benefits and tax deficiencies to be recognized as an income tax expense or benefit in the income statement. In addition, excess tax benefits resulting from an award should be recognized regardless of whether they reduce taxes payable in the current period.

ASU 2016-09 also gives companies an additional option to account for forfeitures. Under current guidelines, companies must estimate the number of awards expected to vest. Companies may now elect to account for forfeitures as they occur.

The other significant changes resulting from the standard are one-time elections nonpublic entities can make. The first election allows nonpublic entities to estimate the expected term for all awards with performance or service conditions that meet certain conditions. Currently, companies are required to estimate the period of time an option will be outstanding and expense the option over that time. The second election allows nonpublic entities to switch from measuring all liability-classified awards at fair value to intrinsic value.

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