Honors College Theses

Simplifying Share-Based Payment Accounting: The Influence of FASB ASU No.2016-09 on Earnings and Cash Flow Volatility

Publication Date



Accounting (BBA)

Document Type and Release Option

Thesis (archived)

Faculty Mentor

Stephanie Hairston

Thesis Summary

In this study, I examine the influence of Accounting Standard Update (ASU) No. 2016-09, Compensation- Stock Compensation (Topic 718): Improvement to Employee Share-based Payment Accounting, on earnings and cash flow volatility for firms affected by the updated standard. Prior to ASU 2016-09, excess tax benefits for equity awards were reported as part of additional paid in capital (APIC) on the balance sheet, and tax deficiencies were offset by APIC with the remaining amount reported as income tax expense (FASB 2016). Under ASU 2016-09, companies are required to recognize all excess tax benefits and deficiencies on the income statement regardless of whether the tax benefits reduce income tax payable in the current period (FASB 2016). I find evidence consistent with higher levels of earnings and cash flow volatility after implementation of ASU 2016-09. However, firms that issue more share-based compensation experience lower levels of earnings and cash flow volatility after implementation.

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