On November 29th, the SEC’s Office of the Chief Accountant and the Division of Corporation Finance published Staff Accounting Bulletin (SAB) No. 120, an interpretive guidance for public companies which details how to properly identify and disclose compensation costs for “spring-loaded awards” made to executives. Spring-loaded awards are share-based compensation arrangements in which a company grants stock options or other awards shortly before it announces market-moving information, for example, the disclosure of a substantial transaction or an earnings release that surpasses expected results.
In compliance with the current US GAAP, Accounting Standards Codification (ASC), and Topic 718 – Compensation — Stock Compensation (Topic 718), SAB No. 120 expresses the viewpoints of the staff concerning the estimation of the fair value of share-based payment transactions when a company possesses material non-public information and modifies portions of the interpretive guidance included in the Staff Accounting Bulletin Series (Series).
The FASB has undertaken various projects to revise share-based payment accounting in Topic 718 including issuing the following:
November 2019: Accounting Standards Update (ASU) 2019-08, Compensation — Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606): Codification Improvements — Share-Based Consideration Payable to a Customer
June 2018: ASU 2018-07, Compensation — Stock Compensation (Topic 718): Improvements to Non-employee Share-Based Payment Accounting (ASU 2018-07)
March 2016: ASU 2016-09, Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09)
The SAB rescinds and conforms sections of the interpretive guidance outlined in the Series to bring current guidance into compliance with Topic 718, as updated by these ASUs.
The statements outlined staff accounting bulletins are not rules or interpretations of the SEC, nor are they published as bearing the SEC’s official approval. They exemplify interpretations and practices followed by the Division of Corporation Finance and the Office of the Chief Accountant in administering the disclosure requirements of the federal securities laws. For further details on additional interpretive guidance, rescissions, and conforming edits made to the Staff Accounting Bulletin Series, visit sec.gov.
The information released in Staff Accounting Bulletin No. 120 will go into effect following its publication in the Federal Register.
For more information, contact Dan Janiak, Professional Accounting Fellow, Office of the Chief Accountant at (202) 551-5300 or Todd E. Hardiman, Associate Chief Accountant, Division of Corporation Finance at (202) 551-3400, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549.