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In March of this year, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU 2016-09) entitled Improvements to Employee Share-Based Payment Accounting. This document describes changes to ASC Topic 718, which governs accounting for stock or other share-based compensation. This includes restricted stock, employee stock options, and relative total shareholder awards among other instruments. The changes to ASC 718 set forth in ASU 2016-09 will take effect for public companies for annual periods which begin after December 15, 2016. For non-public entities, which are also affected, the changes will take effect for annual periods beginning after December 15, 2017.

One important change described in the update relates to accounting for excess tax benefits or tax deficiencies which arise due to differences between the deduction for tax purposes (based on grant-date fair value) and the compensation cost recognized for financial reporting purposes (based upon actual value of the realized award). Currently, these items are recognized as additional paid-in capital in the case of tax benefit or as an offset to the accumulated tax benefits or as an expense in the case of a deficiency. Going forward, these items will be recognized as income or expense in the period in which they occur.
There are other changes too numerous to list here. The full text of the update may be viewed at:

http://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176168028584&acceptedDisclaimer=true

All entities using equity-based compensation should take note of this update and prepare to adjust their accounting practices as necessary. The staff of Montgomery Investment Technology can assist you in these efforts. We invite you to contact us with your questions.

July 2016