Private Company Accounting Option for Measuring Certain Types of Share Awards Issued
On October 25, 2021, FASB issued a simpler accounting option that will enable private companies to more easily measure certain types of shares they provide to both employees and nonemployees as part of compensation awards. The rules allow private companies to apply one valuation method for taxes and GAAP to measure equity-classified share awards, thereby enabling them to reduce costs. The cost savings will come from companies no longer having to obtain two independent valuations for GAAP and for tax purposes, according to the guidance. Private companies that take the option will need to apply it prospectively for all qualifying awards granted or modified during fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early application, including application in an interim period, is permitted for financial statements that have not yet been issued or made available for issuance as of October 25. “This ASU addresses issues raised by some stakeholders associated with calculating the fair value of these awards,” FASB Chair Richard Jones said in a statement. “It is yet another example of how the PCC continues to help the FASB better meet the needs of private company stakeholders while maintaining the quality of information provided to financial statement users.”
Investor Group Urges FASB to Require More Details about Workforce Costs
Investors consider a company’s workforce to be a necessary part of creating long-term shareholder value and therefore FASB should pursue requiring more detailed information in financial statements or disclosures about labor cost, according to the Human Capital Management Coalition (HCMC), a global group of 25 institutional asset owners and asset managers representing over $6.6 trillion in assets. The group urged FASB to prioritize the “incorporation of decision-useful human capital information” into its technical agenda as a critical step toward further modernizing financial reporting. The value of human capital—the collective knowledge, skills, and experiences of the workforce—is highly important to corporate value creation, and this has only grown over the past decades, the HCMC told the board in a recent letter. “The HCMC is very supportive of FASB’s pursuit of greater disclosure of material, decision-useful information, including the disaggregation of labor costs,” a spokesperson from California State Teachers’ Retirement System (CalSTRS), which co-chairs the HCMC, told Thomson Reuters in an October 22 email. “Investors and other financial statement users have cited the need for disaggregation in the income statement, in the statement of cash flows, or in the notes to financial statements, specifically a breakdown of cost of sales and selling, general and administrative expenses,” the spokesperson said. “Components of total workforce cost should include a line-item breakdown of total employee compensation and training and development expenses.”
ASB Makes Progress on Quality Management and NOCLAR Projects
The AICPA’s Auditing Standards Board (ASB) has proposed enhancing certain communications between predecessor and successor auditors, and it will vote to issue the final version of the proposed changes early next year. The ASB issued the proposal in February 2021 in an exposure draft, “Proposed Statement on Auditing Proposed Statement on Auditing Standards (SAS) Inquiries of the Predecessor Auditor Regarding Fraud and Noncompliance with Laws and Regulations (NOCLAR).” It would require previous and new auditors to discuss known or suspected NOCLAR—non-compliance with laws and regulation—matters if clients’ management consents to such communications. The AICPA said examples include the client’s noncompliance with tax or pension laws and regulations. When the ASB published the proposal eight months ago, the AICPA’s Professional Ethics Executive Committee (PEEC) issued a related exposure draft that would revise the organization’s professional code of conduct on NOCLAR. As a result, the ASB will vote on the standard during a meeting after PEEC votes to approve proposed revisions to the code on NOCLAR, which is expected in February, according to Ahava Goldman, associate director for audit and attest standards with the Association of International Certified Professional Accountants. If approved, the standard would be issued in conjunction with the revised code.