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ASU Related to Performance Targets Issued by the FASB

Due to an agreement regarding its Emerging Issues Task Force, the Financial Accounting Standards Board has released Accounting Standards Update (ASU) No. 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. Effective for annual and interim periods within periods starting after December 15, 2015, the ASU’s amendments require a performance target that impacts vesting and can be attained after the requisite service period be handled as a performance condition.

When calculating the award’s grant-date fair value, the performance target should not be considered. The compensation cost, however, should be recognized in the period in which the performance target is likely to be attained.

Early adoption of the amendments is allowed. Entities can apply the ASU’s amendments in two ways:

  1. Prospectively to any award granted or modified after the effective date; or
  2. Retrospectively to any award including performance targets that are unresolved as of the start of the earliest annual period reported in the financial statements, and to all new or revised awards afterward.

If any entity adopts a retrospective transition to the amendments, then the cumulative effect must be recognized as an adjustment in the opening retained earnings balance.

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