2. Add paragraphs 718-10-30-20C through 30-20H and their related heading, with a link to transition paragraph 718-10-65-16, as follows:
> Nonpublic Entity—Practical Expedient for Current Price
718-10-30-20C As a practical expedient, a nonpublic entity may use a value determined by the reasonable application of a reasonable valuation method as the current price of its underlying share for purposes of determining the fair value of an award that is classified as equity in accordance with paragraphs 718-10-25-6 through 25-18 at grant date or upon a modification. This practical expedient may not be used for awards classified as liabilities in accordance with paragraphs 718-10-25-6 through 25-18.
718-10-30-20D The determination of whether a valuation method is reasonable, or whether an application of a valuation method is reasonable, shall be made based on the facts and circumstances as of the measurement date. Factors to be considered under a reasonable valuation method include, as applicable:
a. The value of tangible and intangible assets of the nonpublic entity
b. The present value of anticipated future cash flows of the nonpublic entity
c. The market value of stock or equity interests in similar corporations and other entities engaged in trades or businesses substantially similar to those engaged in by the nonpublic entity for which the stock is to be valued, the value of which can be readily determined through nondiscretionary, objective means (such as through trading prices on an established securities market or an amount paid in an arm’s-length private transaction)
d. Recent arm’s-length transactions involving the sale or transfer of stock or equity interests of the nonpublic entity
e. Other relevant factors such as control premiums or discounts for lack of marketability and whether the valuation method is used for other purposes that have a material economic effect on the nonpublic entity, its stockholders, or its creditors
f. The nonpublic entity’s consistent use of a valuation method to determine the value of its stock or assets for other purposes, including for purposes unrelated to compensation of service providers.
718-10-30-20E The use of a valuation method is not reasonable if that valuation method does not take into consideration when applying its methodology all available information material to the value of the nonpublic entity.
718-10-30-20F The use of a value previously calculated under a valuation method is not reasonable as of a later date if either of the following conditions is met:
a. The calculation fails to reflect information available after the date of the calculation that may materially affect the value of the nonpublic entity (for example, the resolution of material litigation or the issuance of a patent).
b. The value was calculated with respect to a date that is more than 12 months earlier than the date for which the valuation is being used.
718-10-30-20G A valuation performed in accordance with Treasury Regulation Section 1.409A-1(b)(5)(iv)(B) having the characteristics described in paragraphs 718-10-30-20D through 30-20F is an example of a valuation that is reasonable under the practical expedient in those paragraphs.
718-10-30-20H A nonpublic entity that elects the practical expedient in paragraphs 718-10-30-20C through 30-20F shall do so on a measurement-date-bymeasurement- date basis. That is, the practical expedient shall be applied to all share-based awards within the scope of the practical expedient having the same underlying share and the same measurement date.
3. Amend paragraph 718-10-50-2(f), with a link to transition paragraph 718-10- 65-16, as follows:
Compensation—Stock Compensation—Overall Disclosure
718-10-50-2 The following list indicates the minimum information needed to achieve the objectives in paragraph 718-10-50-1 and illustrates how the disclosure requirements might be satisfied. In some circumstances, an entity may need to disclose information beyond the following to achieve the disclosure objectives:
f. For each year for which an income statement is presented, both of the following (An entity that uses the intrinsic value method pursuant to 7 paragraphs 718-10-30-21 through 30-22 is not required to disclose the following information for awards accounted for under that method):
- A description of the method used during the year to estimate the fair value (or calculated value) of awards under share-based payment arrangements
- A description of the significant assumptions used during the year to estimate the fair value (or calculated value) of share-based compensation awards, including (if applicable):
i. Expected term of share options and similar instruments, including a discussion of the method used to incorporate the contractual term of the instruments and grantees’ expected exercise and postvesting termination behavior into the fair value (or calculated value) of the instrument.
ii. Expected volatility of the entity’s shares and the method used to estimate it. An entity that uses a method that employs different volatilities during the contractual term shall disclose the range of expected volatilities used and the weighted-average expected volatility. A nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable for it to estimate the expected volatility of its share price, the appropriate industry sector index that it has selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index.
iii. Expected dividends. An entity that uses a method that employs different dividend rates during the contractual term shall disclose the range of expected dividends used and the weighted-average expected dividends.
iv. Risk-free rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used.
v. Discount for postvesting restrictions and the method for estimating it.
vi. Practical expedient for current price input. A nonpublic entity that elects to apply the practical expedient in paragraphs 718-10-30- 20C through 30-20F shall disclose that election.
4. Add paragraph 718-10-65-16 and its related heading as follows:
Transition and Open Effective Date Information
> Transition Related to Accounting Standards Update No. 2021-07, Compensation—Stock Compensation (Topic 718): Determining the Current Price of an Underlying Share for Equity-Classified Share-Based Awards
718-10-65-16 The following represents the transition and effective date information related to Accounting Standards Update No. 2021-07, Compensation—Stock 8 Compensation (Topic 718): Determining the Current Price of an Underlying Share for Equity-Classified Share-Based Awards:
a. The pending content that links to this paragraph shall be effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022.
b. An entity shall apply the pending content that links to this paragraph prospectively.
c. Early application, including application in an interim period, is permitted for financial statements that have not been issued or made available for issuance as of October 25, 2021.