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Federal Register / Vol. 86, No. 228 / Wednesday, December 1, 2021 / Rules and Regulations Subject
Release No.

Publication of Staff Accounting Bulletin No. 120.

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Staff Accounting Bulletin No. 120
This staff accounting bulletin SAB
adds interpretive guidance for public companies to consider when entering into share-based payment transactions while in possession of material nonpublic information, including sharebased payment transactions that are commonly referred to as being springloaded. Specifically, the staff is updating the Series to provide additional guidance to companies estimating the fair value of share-based payment transactions in accordance with Topic 718 regarding the determination of the current price of the underlying share and the estimation of the expected volatility of the price of the underlying share for the expected term when the company is in possession of material non-public information.
Additionally, this SAB rescinds portions and conforms portions of the interpretive guidance included in the Series in order to make the relevant staff interpretive guidance consistent with the latest U.S. generally accepted accounting principles U.S. GAAP as issued by the FASB. Specifically, the staff is updating the Series in order to bring existing guidance into conformity with Topic 718. The FASB has undertaken various projects to update share-based payment accounting in Topic 718 including, but not limited to, issuing:
Accounting Standards Update ASU 201908, Compensation Stock Compensation Topic 718 and Revenue from Contracts with Customers Topic 606: Codification ImprovementsShare-Based Consideration Payable to a Customer, in November 2019;
ASU 201807, Compensation Stock Compensation Topic 718:
Improvements to Nonemployee ShareBased Payment Accounting ASU
201807, in June 2018; and ASU 201609, Compensation Stock Compensation Topic 718:
Improvements to Employee Share-Based Payment Accounting ASU 201609, in March 2016.
The rescissions and conforming changes bring existing guidance into
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SAB120 December 1, 2021

Note: The text of Staff Accounting Bulletin No. 120 will not appear in the Code of Federal Regulations.

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conformity with Topic 718, as updated by these ASUs.
The following describes the additional interpretive guidance, rescissions, and conforming edits made to the Series that are presented at the end of this release:
1. Topic 14: Share-Based Payment Topic 14 includes Securities and Exchange Commission staff views on a variety of share-based payment topics.
This SAB makes the following updates to Topic 14:
a. Amendment and replacement of Topic 14.D: Certain Assumptions Used in Valuation Methods. The staff has observed numerous instances where companies have granted share-based compensation while in possession of positive material non-public information, including share-based payment transactions that are commonly referred to as being springloaded. When companies are in possession of positive material nonpublic information, the staff believes these companies should consider whether adjustments to the current price of the underlying share or the expected volatility of the price of the underlying share for the expected term of the share-based payment award are appropriate when applying a fair-valuebased measurement method to estimate the cost of its share-based payment transactions. The staff is including examples where such adjustments may be necessary and is reminding companies of their corporate governance obligations and disclosure obligations under U.S. GAAP with respect to sharebased payment transactions, as well as the need to maintain effective internal control over financial reporting.
b. Rescission of Subtopic 14.A: ShareBased Payment Transactions with Nonemployees. The interpretive guidance included in this Subtopic addresses if share-based payment transactions with nonemployees are included in the scope of ASC 718.
Because the amendments in ASU 2018
07 expand the scope of ASC 718 to include accounting for share-based payment transactions with nonemployees and supersede the guidance in FASB ASC Subtopic 505
50, Equity: Equity-Based Payments to Non-Employees ASC 50550, Topic 14.A is no longer relevant.

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c. Conforming edits to Subtopics 14.B:
Transition from Nonpublic to Public Entity Status; 14.C: Valuation Methods;
14.D: Certain Assumptions Used in Valuation Methods; 14.E: FASB ASC
Topic 718, CompensationStock Compensation, and Certain Redeemable Financial Instruments; 14.F:
Classification of Compensation Expense Associated with Share-Based Payment Arrangements; and 14.I: Capitalization of Compensation Cost Related to ShareBased Payment Arrangements. Recent FASB ASUs 201807 and 201609
updated terminology used in ASC 718.
Because the aforementioned Subtopics in Topic 14 directly or indirectly reference ASC 718, conforming updates are necessary to reflect the most updated U.S. GAAP terminology.
2. Topic 5: Miscellaneous Accounting Subtopic 5.T: Accounting for Expenses or Liabilities Paid by Principal Stockholders is updated to make conforming edits as a result of amendments in ASU 201807. Subtopic 5.T references ASC 71810154 and ASU 201807 updated the terminology used in this paragraph to include awards to both employees and nonemployees. The conforming updates are necessary to reflect the most updated U.S. GAAP terminology.
Accordingly, the staff hereby amends the Staff Accounting Bulletin Series as follows:

Topic 14: Share-Based Payment

The interpretations in this SAB
express views of the staff regarding the interaction between FASB ASC Topic 718, CompensationStock Compensation, and certain SEC rules and regulations and provide the staffs views regarding the valuation of sharebased payment arrangements for public companies. FASB ASC Topic 718 is based on the underlying accounting principle that compensation cost resulting from share-based payment transactions be recognized in financial statements at fair value.1 Recognition of compensation cost at fair value will provide investors and other users of financial statements with more 1 FASB ASC paragraphs 71810302 through 71810304.

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