Last Monday, the FASB met to review the comments submitted on the exposure draft of the proposed amendments to ASC 718.  I have been watching the video of the meeting (and you can too) and have made it about half way through.  After getting over my shock that no one on the Board has mentioned what a finely crafted comment letter I submitted, here’s what I’ve learned so far. (See the NASPP alert “FASB Issues Exposure Draft of ASC 718 Amendments” for a summary of the exposure draft).

Tax Accounting

The most controversial aspect of the exposure draft is the proposal to record all excess tax benefits and shortfalls in tax expense.  Despite the fact that the overwhelming majority of letters submitted opposed this (see my Nov. 10 blog “Update to ASC 718: The Comments“)—including my own aforementioned finely crafted letter—and the FASB staff’s recommendation that the excess benefits and shortfalls be recognized in paid-in-capital instead, the Board voted to affirm the position in the exposure draft.  I was a little surprised at how little time the Board spent considering the staff’s recommendation.

The Board decided that stock plan transactions could be treated as “discrete items” that do not need to be considered when determining the company’s annual effective tax rate.  I don’t know a lot about effective tax rates, but I’m guessing that this is poor consolation for the impact this change will have on the P&L.

Estimated Forfeitures

The Board affirmed the proposal to allow companies to make an entity-wide decision to account for forfeitures as they occur, rather than estimating them.  At one point, the board was considering requiring companies to account for forfeitures as they occur (without even re-exposing this decision for comment), which was a little scary. I think most of us have supported this proposal primarily on the basis that companies can keep their current processes in place if they want; I’m not sure it would have received as much support if accounting for forfeitures as they occur had been mandatory (this wasn’t even mandatory under FAS 123).  Thankfully, the Board backed off from that suggestion.

Share Withholding

The Board affirmed the decision to expand the share withholding exception to liability treatment, in spite of concerns that the potential cash outflow without a recorded liability could be misleading for users.  For one nail-biting moment, eliminating the exception altogether was on the table (in my amateur opinion, this would seem to go well beyond the scope of what is supposed to be a “simplification” project, given the considerable impact this would have on practices with respect to full value awards).  Luckily, this suggestion did not receive any votes (not even from the Board member who suggested it, oddly enough).

Stay Tuned

More on the rest of the FASB’s decisions in a future blog entry.

– Barbara