The Advisors' Blog

– Broc Romanek

Yesterday, the FASB issued “Accounting Standards Update No. 2017-09, Stock Compensation (Topic 718).” The ASU is effective for annual periods – and interim periods within those annual periods – beginning after December 15, 2017.

Here’s the intro from this “Accounting Today” article:

The Financial Accounting Standards Board has released an accounting standards update containing guidance on which changes to the terms or conditions of a share-based payment award require companies to apply modification accounting. The new standards update aims to give accountants more clarity on the guidance FASB provided in an earlier stock compensation accounting standard, known as Topic 718. FASB wants to reduce the differences in practice in applying the standard, along with the cost and complexity of applying it, to a change to the terms or conditions of a share-based payment award.

Companies can change the terms or conditions of a share-based payment award for a variety of different reasons, and the nature and effect of the change can vary significantly. FASB currently defines the term “modification” as “a change in any of the terms or conditions of a share-based payment award,” but some of its constituents have pointed out that the definition of the term modification is broad and its interpretation results in diversity in practice.

Some companies evaluate whether a change to the terms or conditions of an award is substantive. When they decide the change is substantive, they apply modification accounting in Topic 718. But when they conclude a change isn’t substantive, they don’t apply modification accounting. Topic 718 doesn’t include guidance about what changes are considered “substantive.”