On November 24, 2021, the SEC Staff issued Staff Accounting Bulletin 120 to address recognition of compensation expense if a company enters into share-based payment transactions when in possession of material non-public information.  Such share-based payment transactions are frequently referred to as “spring-loaded.”  The SAB provides the staff’s views that companies must consider the impact of the release of material non-public information when estimating the fair value of such grants.

The SAB describes its objective with this language:

“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.”

The SAB includes a number of examples dealing with these issues.  It also updates various other SAB areas to conform with ASC 718.

As a reminder the Press Release closes with these words:

“The statements in SABs are not rules or interpretations of the Commission nor are they published bearing the Commission’s official approval. They represent interpretations and practices followed by the Division of Corporation Finance and the Office of the Chief Accountant in administering the disclosure requirements of the federal securities laws.

As always, your thoughts and comments are welcome!