Stock compensation standard is amended

Companies may have an easier time making minor changes to the terms of employee stock compensation awards, according to an update to U.S. GAAP the FASB published on May 10, 2017.

Accounting Standards Update (ASU) No. 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, exempts certain types of limited changes to stock awards from following the modification guidance in Topic 718, Compensation — Stock Compensation.

Topic 718 requires companies to make sometimes complex calculations about the change in value of awards when they modify them. But critics told the FASB that the definition of a modification was too vague, leading to the use of modification accounting for relatively small or administrative changes to an award, such as an alteration to the company name or address. Changes in an award’s net settlement provisions for tax withholding that does not affect the award’s classification also would not be considered a modification with the amendment in ASU No. 2017-09.

The update also says modification accounting is not required for changes that do not affect an award’s total current fair value, vesting requirements or classification as an equity instrument or a liability instrument. Awards that do not have to follow the modification guidance will still have to be disclosed in a financial statement’s footnotes.

“The new ASU is intended to provide clarity and reduce both diversity in practice and cost and complexity when applying the guidance in Topic 718 to a change to the terms or conditions of a share-based payment award,” the FASB said.

The amendments are effective for annual periods, and quarterly reports within those periods, beginning after Dec. 15, 2017. Early adoption will be allowed.

The FASB released the draft version of the update in November as Proposed ASU No. 2016-360, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting.

Companies change the terms or conditions of share-based payments for a many reasons, and Topic 718 requires companies to calculate and record the incremental fair value of the modified award as a compensation cost on the date a vested award is modified. For awards that have not vested, the compensation cost is recorded over the remaining service period.

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