In late February, the FASB met to review the comments received on the exposure draft of the proposed update to modification accounting under ASC 718 (see “ASC 718 Gets Even Simpler“) and voted to go ahead with the changes.
The update clarifies that when the terms of an award are amended, modification accounting is required only if the amendment causes one of the following things to change:
- The current fair value of the award
- The vesting provisions
- The equity/liability status of the award
The Comment Letters
The FASB received only 15 comment letters on the exposure draft and 12 of those were in support or it. The three letters that opposed the proposal did so at least in part because they felt that the above conclusion can already be drawn from the current standard. (Although, board member James Kroeker noted that one of the firms that opposed the proposal had previously contacted the FASB with technical inquiries as to what types of amendments require modification and had suggested that the FASB issue the update because they felt that there is diversity in practice. Go figure—perhaps the people writing the letters don’t communicate with the people actually doing the work.)
The FASB’s Decision
The FASB voted to go ahead with the proposed update, with only a few clarifications:
- The determination of whether the fair value has changed should be consistent with the approach used to determine incremental cost for modifications. In general, this is determined on an award basis (rather than a per-share basis or an aggregate basis for all awards modified at one time).
- The disclosures related to material modifications are required even if the amendment doesn’t trigger modification accounting.
Not So Fast; This Isn’t Final Yet
The FASB staff still has to draft the final language of the update and the FASB has to approve it. The staff anticipates issuing the final update in April 2017. Public companies will have to adopt it by the start of their first fiscal year beginning after December 15, 2017. Early adoption is permitted, but not before the official ASU is issued.
Could I Possibly Use the Word Modification More in One Blog Entry?
I doubt it. Here is this blog entry in a nutshell: As a result of technical questions that arose in the context of the prior modification to ASC 718, the FASB voted to go forward with a proposed modification to ASC 718 to stipulate that award modifications are subject to modification accounting only when the fair value, vesting conditions, or status of awards are modified, but the FASB had a few modifications to the proposed modification. The next time the FASB decides to update ASC 718, I hope the change doesn’t have anything to do with award modifications.