PCC Approves Share Option Proposal, with Clarifications

The Private Company Council (PCC) unanimously said the FASB should move forward with an August proposal on measuring the grant-date fair value of equity-classified share-based awards but consider broadening the scope and making other clarifications. More discussions should be held on whether to broaden the proposal from equity classified share option awards to incorporate other types of securities, as suggested by comment letter respondents, PCC members said. “There [are a number of letters] that brought up the fact that it seems to be logically inconsistent if we don’t broaden the scope,” Michael Minnis, associate professor at the University of Chicago Booth School of Business, said.” Let’s say for example if this is a valuation approach that we feel is reasonable to use, then why aren’t we using it for nonvested restricted stock and other types of securities because the underlying valuation is the same —it’s the same security,” he said. The discussions were specific to proposed Accounting Standards Update (ASU) 2020-200, “Compensation—Stock Compensation (Topic 718): Determining the Current Price of an Underlying Share for Equity-Classified Share-Option Awards, a Proposal of the Private Company Council.” The proposal would provide a practical expedient to determine the current price input for an option pricing model used to calculate the grant-date fair value of an equity-classified share-option award. A practical expedient is an alternative aimed at producing a more cost effective way of achieving the same or similar accounting objective.

Consultation Document on Technical Agenda Priorities Planned

FASB plans to issue a consultation document in the middle of next year to obtain public feedback about priority areas the board should address in its future accounting rulemaking efforts, board Chair Richard Jones told a virtual financial reporting conference on December 8. Starting this month, the board will begin to conduct outreach with its advisory and other stakeholder groups to understand priority areas they think it should address, Jones said at the AICPA’s 2020 Conference on Current SEC and PCAOB Developments. And by next spring, FASB will analyze and share that feedback with the Financial Accounting Standards Advisory Council (FASAC), its main advisory body, for its views, he said. “Based on what we hear we will develop an invitation-to-comment or discussion paper sometime in the middle of next year,” said Jones. “Based on what we would have learned, we will be in a better position to decide where to prioritize our focus and focus our efforts.” The last consultation document of this kind FASB developed was in 2016. “I believe it’s time to do it again,” he said. FASB’s technical agenda currently includes 33 active and eight research projects, plus post-implementation review (PIR) of accounting standards for leases, credit losses, and revenue recognition. The board’s priorities since March have been to address COVID-19 related emerging reporting issues, but it has been eyeing other topics for next year.


2020 Guide for Auditing Financial Instruments Published

The AICPA has published the 2020 edition of the Audit and Accounting Guide for Special Considerations in Auditing Financial Instruments. The AICPA stated that companies of all sizes may be subject to risks of material misstatements with financial instruments, and the new edition provides a foundational understanding of them. The guide also provides practical tips for auditors to address such risks. It also includes implementation guidance for assessing a company’s internal control and responding to associated risks. In addition, the guide has a series of case studies, including “changing the classification of a security, how an entity’s use of a service organization affects the auditor’s considerations, separately accounting for a derivative embedded in a bond, using an interest rate swap to hedge existing debt, and using a foreign currency put option to hedge a forecasted sale denominated in a foreign currency.”