A chart comparing the key considerations for common types of modifications to equity awards.
Written for readers without an accounting background, this article provides a summary of the treatment of stock compensation under US GAAP. Also includes highlights of differences between the US GAAP and IFRS with respect to stock compensation.
The FASB recently issued ASU 2017-09 to clarify which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The ASU becomes effective for all entities for fiscal years beginning after December 15, 2017.
On May 10, 2017, the FASB issued ASU 2017-09, which clarifies when modification accounting is required under ASC 718.
This development covers the FASB's exposure draft of a proposed modification to ASC 718 that is intended to clarify when an amendment to an existing equity plan or award is subject to modification accounting under the standard.
Many companies, knowing that out-of-the-money, or underwater, share options can affect
the morale and retention of key employees, are considering whether and how to modify
outstanding awards. Companies exploring strategies should understand their accounting
implications as well as the business, organizational, and regulatory concerns that are the
context for the strategies. This edition of Defining Issues describes the accounting implications
of the more common approaches and some basic factors that should be considered when a
company tailors a strategy to its specific circumstances.
As a result of declines in employer stock prices, companies may consider strategies intended to maintain value or
provide alternative incentives associated with employee share-based awards that are "under water" (i.e., the award's
exercise price is greater than the current market price of the stock). Careful consideration should be given to the
accounting for such strategies. This HRS Insight discusses the accounting for various strategies that may be
considered and provides practical examples for each strategy.
Major accounting firms recently have interpreted the guidance in FAS 123R in a manner that could lead to significant unanticipated compensation charges in connection with equity restructurings. Common antidilution adjustments that had no accounting consequences under APB 25 and FIN 44 could result in substantial additional compensation expense under FAS 123R if they are done on a permissive, rather than mandatory, basis.
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