FASB addresses valuation of private company share-based awards

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FASB addresses valuation of private company share-based awards

FASB issued a proposal Monday that is designed to make it easier for private companies to determine the fair value of a share-option award on its grant date or modification date.

The proposal was introduced by the Private Company Council (PCC), which identified determining the fair value in these circumstances as a costly and complex challenge for private companies. Private company equity shares often are not actively traded, so observable market prices for those shares do not exist.

Under the proposal, a nonpublic entity would be permitted to determine the current price of a share underlying an equity-classified share-option award using a valuation method performed in accordance with specific Treasury regulations that provide acceptable methodologies to comply with the “presumption of reasonableness” requirements of Sec. 409A of the Internal Revenue Code (Regs. Sec. 1.409A-1(b)(5)(iv)(B)(2)).

“Members of the PCC conveyed concerns that current guidance on determining fair value for these shares creates unnecessary cost and complexity for some stakeholders,” FASB Chair Richard Jones said in a news release. “The proposed ASU puts forth a potential solution to this issue, and we look forward to hearing what our stakeholders think about it.”

Comments on the proposal can be submitted through Oct. 1 at FASB’s website.

Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is the JofA’s editorial director.

Research & References of FASB addresses valuation of private company share-based awards|A&C Accounting And Tax Services
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