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SEC© Updates Guidance on Share-Based Compensation Disclosures in IPOs

Publisher: Morrison Foerster
Author: Ze’-Ev Eiger

In early February, the Division of Corporation Finance of the SEC© updated its guidance regarding share-based compensation disclosures in IPO prospectuses.

The updates revise  prior SEC© guidance recommending that issuers, in their disclosure of pre-IPO share-based compensation, include tabular disclosure (for the 12 month period preceding the most recent balance sheet date) regarding the number of instruments granted, the exercise price, the fair value of the underlying stock and the fair value of instruments granted, as well as narrative disclosure describing the factors that contributed to significant changes in the fair value of the underlying stock during the relevant twelve-month period. The updated guidance no longer requires this level of detail. Instead the SEC© will consider, in assessing the adequacy of share-based compensation disclosure, whether the following critical accounting estimate disclosures are included in the company’s IPO prospectus:

  • The methods that management used to determine the fair value of the company’s shares and the nature of the material assumptions involved.
  • The extent to which the estimates are considered highly complex and subjective.

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