Happy New Year! It’s that time of the (new) year again where I offer up congrats and celebration for a few exciting NASPP happenings.
Question of the Week Winner!
And the winner is of our 2015 Question of the Week contest is (drum roll!): mamaandmore (who, by the way, placed 2nd in our 2014 contest). For those of you who are asking “What’s the Question of the Week Contest?“, it’s a weekly quiz challenge designed for stock plan professionals to test their know-how in a variety of areas, while competing against their peers. Hone your equity compensation knowledge while having fun at the same time! There’s a new question each week, and a correct answer earns points.
And the Winners Are…
A big congrats to screen name alias mamaandmore for coming out on top of our 2015 contest. The screen names of the top 5 scorers (in order from 1st to 5th place) are:
- mamaandmore
- Doctor Jack and DMekwunye (tied)
- Heartbeat
- Lucky13
- MrsForty40
What’s in a Name?
Your play is tracked by your screen name – so you can be as anonymous or transparent in your game playing as you like. It’s become an annual tradition for me to highlight some of the fun, intriguing and perplexing screen names each year. In 2015, once again it seems nothing was off limits, from the range of “equity” and “stock” possibilities (CEP 1001, Sleepless in Stock Plan Admin. Land, EquityExtraordinaire, Equity Gamer, StockyMcStockMiester) to the mythical (unicorn6872) to the humble (Imnoexpert, InCaseIFlunk, Guessing, Humble Pie) to those who tell it like it is (Don’tKnowNuthin, The expert, The_Wrong_Way, whateverdude). Of course our sports fans were abundant as well (Golf, Hockeyfan, ORLonghorns, NY_YANKEE), in addition to a few that would probably require a happy hour and some time to explain (Bad Mamajama, Juice Club, Bubba, Sparky, Sparty Po, adminwannabe, Peter Pan).
Work Hard, Play Hard
We’ve just reset scores and this week’s challenge starts a whole new contest, so this is the perfect time for NASPP members to sign up, create your screen alias and jump into the Question of the Week Contest. We leave all of January’s questions active for the entire month, so you have plenty of time to complete the first quizzes of the new game.
Equity Expert Podcast
One milestone we’re recognizing is the 2nd anniversary of our NASPP podcast series: Equity Expert. That’s right, you can download short episodes right to your computer, smartphone or other device and listen to them at your leisure. This series focuses on short interviews with some of the industry’s best and brightest on a variety of equity compensation topics. Shorter than webcasts, they are designed to give you the quick run down on details you need to know. Our most recent episodes include Hot Topic! EU Data Privacy in 2016 with Barbara Klementz, Global Hot Topics with Marlene Zobayan, and 5 Things I Learned About Global Compliance and Communication. Be sure to subscribe in order to get updates on new episodes.
Social Status
Last year when I wrote this early January blog, we were celebrating our 900th LinkedIn follower. At the time of this blog, we’ve passed the 1,300 follower mark! We’ve got lots of great content posted to our social media pages, so be sure to like/follow us on LinkedIn, Facebook and Twitter!
I wish all of you an incredible 2016!
-Jenn
Tags: Equity Expert, podcast, Question of the Week
For my first blog entry of 2016, I look at the transition methods that will apply under the FASB’s Accounting Standards Update (ASU) to ASC 718. (If you’ve forgotten what this is all about, read Part I and Part II of my update on the FASB’s decisions on the ASC 718 simplification project.) Also, see my handy chart showing how FASB voted on each issue in the exposure draft and the required transition method for it.
Prospective
The prospective transition method is perhaps the easiest to understand. Under this method, the company just changes its accounting procedures on a go-forward basis, with no restatement of prior periods or cumulative adjustments.
The prospective transition method will be used for the tax accounting provisions. For transactions that occur after a company adopts the ASU, the amounts that would have been recorded to additional paid-in capital will now simply be recorded to tax expense. It’s that easy: no adjustments to paid-in capital or tax expense for past transactions and the ASC 718 APIC pool calculation is no more.
Retrospective
Retrospective transition is also fairly straightforward. With this method, the company changes its accounting procedures going forward, but also adjusts any prior periods reported in its current financials. For example, most companies show three fiscal years in their annual financial statements. Where retrospective transition is required, a company that adopts the ASU in 2016 would not only change their accounting procedures for 2016, but would go back and adjust the 2015 and 2014 periods as if the new rules had applied in those periods.
The adjustment is presented only in the current financials; the company does not reissue any previously issued financial statements or re-file them with the SEC.
The only provisions in the ASU that are subject to retrospective transition are the provisions related to classification of amounts reported in the cash flow statement (and for the classification of excess tax benefits, the company can choose between prospective and retrospective).
Modified Retrospective
This transition method is used when a cumulative adjustment is necessary. Accounting for forfeitures is a good example. A company can’t just switch from applying an estimated forfeiture rate to accounting for forfeitures as they occur on a prospective basis: since previously recorded expense was adjusted based on estimated forfeitures, companies would end up double-counting forfeitures when they occur. Retrospective restatement wouldn’t fix this problem because some of the prior expense may have been recorded outside of the periods presented in the company’s current financials.
It also doesn’t make sense to make companies record a big change in expense in their current period; this would be confusing (and possibly alarming) to investors and isn’t reflective of what is happening. So instead, the transition is handled with a cumulative adjustment that is recorded as of the start of the fiscal period. This adjustment is recorded in retained earnings (which is the balance sheet account where net earnings end up) with an offsetting entry to paid-in capital.
In the case of forfeitures, the company calculates the total expense it would have recognized as of the start of the period if it had been accounting for forfeitures as they occur all along and compares this to the actual amount of expense recorded to date (which should generally be lower). The difference is then deducted from retained earnings, with a commensurate increase to paid-in capital.
In addition to the forfeitures provision, modified retrospective is used for private companies that take advantage of the opportunity to change how they account for liability awards. It is also used theoretically for the share withholding provisions if companies have been allowing employees to tender shares in payment of taxes in excess the minimum statutorily required withholding and has outstanding awards that are subject to liability treatment as a result. But I doubt anyone has been doing that, so in practice, I don’t think a transition will be necessary for the share withholding provisions.
– Barbara
Tags: Accounting standards update, ASC 718, ASU, expected forfeitures, expected life, expected term, Exposure Draft, FAS123(R), FASB, forfeitures, liability treatment, private companies, share withholding, tax accounting