Guidance has been issued regarding whether the terms and conditions of share-based payments require modification accounting. Last week, Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting. The new ASU requires that a modification accounting be applied unless the following conditions are met:
The modified award’s fair value is equal to the original award’s fair value
The modified award’s vesting conditions is equal to the original award’s vesting conditions
The modified award is categorized in the same way as the original award (as either an equity instrument or a liability instrument)
The disclosure requirements under Topic 718, Compensation—Stock Compensation, will continue to apply to stock awards irrespective whether or not they modification accounting is required.
The changes are effective for all entities for fiscal years, including interim periods within those years, beginning after December 15, 2017. Early adoption is permitted, and the amendments must be applied prospectively.