Complexity in Simplifying Accounting Standards: The Case of ASU 2016-09
16 Pages Posted: 22 Jun 2018
Date Written: June 21, 2018
The current standard for accounting for stock-based compensation to employees and executives has proved to be increasingly complex. This results in accounting information less relevant and useful. To address this issue, the accounting standard setting body, Financial Accounting Standards Board (FASB) issued the Accounting Standard Update (ASU) 2016-09. The new standard aims to simplify the accounting standards on stock based compensation. It changes the way that companies recognize tax benefits arising from gains employees realize from exercising stock option. Using a random sample of 48 software companies, this study examines the impact of the ASU on a company’s reported net income, effective tax rate, operating cash flow, and owner’s equity. Empirical evidence suggests that the accounting standard change has varying effects on companies’ financial performance measures in the same industry. It remains unclear whether the accounting standard has the intended effects of improving usefulness of accounting information.
Keywords: Accounting Standards, Stock-based Compensation, Economic Consequences
JEL Classification: M41
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