The American Institute of Certified Public Accountants’ (AICPA) Financial Reporting Executive Committee (FinREC) recently issued for comment an early working draft of two revised chapters from the AICPA Valuation of Privately-Held Company Equity Securities Issued as Compensation Guide (the Guide). The updated non-authoritative interpretive guidance provides both accounting and valuation considerations relevant to stock-based compensation awards granted by privately held entities when there are secondary market transactions in their shares. The interpretive guidance is intended to better align with the requirements in Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 820, Fair Value Measurement, and ASC 718, Compensation—Stock Compensation.
The release of these two chapters is the first step in significant enhancements expected to be made to the Guide since its last update in 2013. However, no timeline has been communicated as to when other proposed chapter updates may be released.
For some entities, the proposed updates may be viewed as a change in practice and could have implications for financial reporting valuations of privately held entity common stock underlying stock-based compensation awards. As a result, impacted preparers of financial statements, independent auditors, and valuation specialists are encouraged to read the working draft chapters. Comments are due to the AICPA by September 20, 2024.
