The FASB said it plans to review the comment letters submitted in response to a proposal the board issued in November to make it easier for companies to make minor changes to stock compensation awards at its Feb. 22, 2017, weekly meeting.
Most of the comments submitted in response to Proposed Accounting Standards Update (ASU) No. 2016-360, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, backed the proposal, which said that some types of limited alterations to stock compensation awards to do not have to follow the modification guidance in Topic 718, Compensation — Stock Compensation.
Companies change the terms or conditions of share-based payments for many reasons. Topic 718 requires companies to calculate and record the incremental fair value of the modified award as a compensation cost on the date of the modification for vested awards. For unvested awards, the compensation cost is recorded over the remaining service period. But some critics have said the definition of “modification” is too broad, and this sometimes forces companies to make complex calculations for minor changes to stock compensation awards.
The proposal says modification accounting would not be used for changes that do not affect the total current fair value, vesting requirements, or classification of the awards as an equity instrument or a liability instrument. Awards that do not have to follow the modification guidance would still have to be disclosed in a financial statement’s footnotes. An administrative change, for example, such as an alteration to the company name or address, would not be considered a modification. Changes in an award’s net settlement provisions related to tax withholdings that do not affect the classification of the award also would not be considered modifications under the proposal.
The proposal was criticized by CFGI LLC, a financial consulting firm, and the Institute of Management Accountants (IMA). CFGI said the proposal will not reduce the cost or complexity of applying the stock compensation guidance because it implies that businesses must calculate the fair value of modified awards, both before and after the modification, for changes that “are truly administrative in nature.” IMA said the changes were so limited in their scope that they were not worth the accounting board’s attention.
The meeting agenda also includes a discussion about not-for-profit groups and how they should record donations and grants that have conditions attached to them. The FASB wants to determine whether grants and other contracts with government agencies or foundations should be characterized as exchanges or contributions and how the differentiation between exchanges and contributions should be made.
U.S. GAAP says contributions must follow Subtopic 958-605, Not-for-Profit Entities—Revenue Recognition, while exchanges must be accounted for using revenue recognition accounting. The FASB’s Topic 606, Revenue From Contracts With Customers, becomes effective in January 2018 and will replace Topic 605, Revenue Recognition.
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