FASB Makes Progress on Stock Compensation Standard

February 28, 2017

After reviewing feedback on its proposed changes to stock compensation accounting, the Financial Accounting Standards Board (“FASB”) agreed that companies must apply the modification accounting under Topic 718 if an alteration to an award impacts the fair value (or assessed value or intrinsic value, if a different measurement technique is used), vesting conditions, or the award classification.

The FASB said Wednesday that the proposed Accounting Standards Update (“ASU”), Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, should exclude guidance that allows an entity to decide whether a modification to an award’s fair value is insignificant. In addition, the unit of account for the fair value test must be consistent with the existing concept under Topic 718. The FASB also decided that the existing disclosure requirements for modifications are applicable regardless if modification accounting is required.

Entities must apply the guidance prospectively to awards modified on or following the final standard’s effective date. No transition disclosures will be required. The upcoming guidance is effective for fiscal years (and interim periods within such periods) starting after December 15, 2017. Early adoption will be permitted.

FASB staff members plan to draft a final ASU for vote.