FASB Advisory Body Asks Whether ESOP Repurchase Reporting Rules Should Be Enhanced

A February 17, 2026, memo to the Federal Accounting Standards Board (FASB) from the Private Company Council (PCC), the primary advisory body to the FASB on private companies, raises the issue of whether the FASB should reconsider its current rules for accounting for ESOP repurchase obligations in private companies. Drawing on NCEO research, the memo says that private company ESOPs have grown significantly since the FASB last looked at this issue in 1993. At that time, FASB decided not to require private ESOP companies to record the repurchase obligation on their balance sheet but did require that companies provide a description of the obligation, the fair value of the shares allocated as of the balance sheet date, and the number of allocated and unallocated shares. It also concluded that redemptions of ESOP shares from participants are purchases of treasury stock, even if there is a put option, and thus are not obligations requiring recognition. The guidance can be found in FASB Accounting Standards Codification Subtopic 718-40, Employee Stock Ownership Plans, which originated in Statement of Position (SOP) 93-6, Employers’ Accounting for Employee Stock Ownership Plans. 

The impetus for the new memo came from members of ProSight Financial Association, a lender group that regularly meets with the PCC and has urged more ESOP repurchase disclosure since 2023. ProSight members argue that the lack of repurchase obligation information makes it more difficult for lenders to make judgments about providing credit to ESOP companies and have urged FASB to provide more stringent reporting requirements, including reporting the obligation as a liability.

The PCC memo sought feedback from providers and practitioners on this issue and received just 18 responses. Of those, 61% believe that no further action was needed. The memo states, “If the PCC decides at its March 2026 meeting to research ESOPs as part of their agenda priorities, the next step would be to hold an education session with the PCC in June. Outreach materials would then be developed, and future outreach would be conducted with private company stakeholders.”