Compensation

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Compensation—Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606): Clarifications to Share-Based Consideration Payable to a Customer

FASB Accounting Standards Updates - Accounting Standards Update No. 2024-01 -- Compensation - Stock Compensation (Topic 718) - Scope Application of Profits Interest and Similar Awards

FASB Accounting Standards Updates - Accounting Standards Update No. 2021-07 —Compensation —Stock Compensation (Topic 718) —Determining the Current Price of an Underlying Share

FASB Accounting Standards Updates - Accounting Standards Update No. 2021-04 —Earnings Per Share (Topic 260), Debt —Modifications and Extinguishments (Subtopic 470-50), Compensation —Stock Compensation (Topic 718), and Derivatives and Hedging —Contracts in Entity 's Own Equity (Subtopic 815-40): Issuer 's Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force)

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Compensation—Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606): Clarifications to Share-Based Consideration Payable to a Customer

Summary - Certain entities, typically private companies, provide employees and other nonemployees with profits interest and similar awards to align compensation with the company’s operating performance and provide those holders with the opportunity to participate in future profits and/or equity appreciation of the company. The Private Company Council and other stakeholders noted diversity in practice in accounting for these awards as share-based payment arrangements under Topic 718 or similar to cash bonus or profit-sharing arrangements (Topic 710, Compensation—General, or other Topics).

The ASU addresses this input by providing an illustrative example intended to demonstrate how entities that account for profits interest and similar awards would determine whether a profits interest award should be accounted for in accordance with Topic 718.

This ASU is effective for public business entities for annual periods beginning after December 15, 2024, and interim periods within those annual periods. For all other entities, the amendments are effective for annual periods beginning after December 15, 2025, and interim periods within those annual periods.Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance. If an entity adopts the amendments in an interim period, it should adopt them as of the beginning of the annual period that includes that interim period.

The amendments should be applied either (1) retrospectively to all prior periods presented in the financial statements or (2) prospectively to profits interest and similar awards granted or modified on or after the date at which the entity first applies the amendments.

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FASB Accounting Standards Updates - Accounting Standards Update No. 2024-01 -- Compensation - Stock Compensation (Topic 718) - Scope Application of Profits Interest and Similar Awards

Summary - We have published a new edition of our “CCH Accounting Research Manager Summary Checklist of Recent Authoritative U.S. Accounting Standards" to reflect the issuance of Accounting Standards Update (ASU) No. 2024-01, Compensation—Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards.

This ASU is expected to improve GAAP by adding illustrative guidance to help entities determine whether profits interest and similar awards should be accounted for as share-based payment arrangements within the scope of Topic 718, Compensation—Stock Compensation. For public business entities, the ASU is effective for annual periods beginning after December 15, 2024, and interim periods within those annual periods. For all other entities, the amendments are effective for annual periods beginning after December 15, 2025, and interim periods within those annual periods. Early adoption is permitted.

This checklist is intended to serve as a reference tool to review authoritative standards recently issued or approved by the FASB.

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FASB Accounting Standards Updates - Accounting Standards Update No. 2021-07 —Compensation —Stock Compensation (Topic 718) —Determining the Current Price of an Underlying Share

Summary - The FASB has issued FASB Accounting Standards Update (ASU) No. 2021-07, Compensation—Stock Compensation (Topic 718): Determining the Current Price of an Underlying Share for Equity-Classified Share-Based Awards, to improve an area of financial reporting for nonpublic business entities (private companies) that issue equity-classified share-based awards. The ASU is a consensus of the Private Company Council (PCC) that was endorsed by the FASB. The PCC is the primary advisory body to the FASB on private company matters.

Many private companies issue equity-classified share-based awards as compensation to employees and non-employees. When determining the value of these awards, companies typically use a valuation technique such as an option-pricing model. This model requires various inputs, including the fair value of the equity shares underlying a share-option award (referred to as the current price input).

The ASU provides private companies the option to elect a practical expedient to determine the current price input of equity-classified share-based awards issued as compensation using the reasonable application of a reasonable valuation method. The characteristics of this method are the same as the characteristics used in the regulations of the U.S. Department of the Treasury related to Section 409A of the U.S. Internal Revenue Code (the Treasury Regulations) to describe the reasonable application of a reasonable valuation method for income tax purposes.

The practical expedient in this ASU can be elected for equity-classified share-based awards within the scope of FASB Accounting Standards Codification® Topic 718, Stock Compensation. Its amendments apply to all nonpublic entities (as defined in the Master Glossary of the Codification) that issue equity-classified share-based awards and elect the practical expedient.

ASU No. 2021-07 is effective on a prospective basis for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early application, including application in an interim period, is permitted for financial statements that have not been issued or made available for issuance as of October 25, 2021.

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FASB Accounting Standards Updates - Accounting Standards Update No. 2021-04 —Earnings Per Share (Topic 260), Debt —Modifications and Extinguishments (Subtopic 470-50), Compensation —Stock Compensation (Topic 718), and Derivatives and Hedging —Contracts in Entity 's Own Equity (Subtopic 815-40): Issuer 's Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force)

Summary - The FASB issued an ASU that clarifies an issuer’s accounting for call options, including certain modifications or exchanges of freestanding equity-classified written call options (e.g., warrants) that remain equity classified after modification or exchange.

ASU 2021-04 is based on a consensus of the FASB’s Emerging Issues Task Force (EITF). The ASU provides guidance on how an issuer would measure and recognize the effect of these transactions. Specifically, it provides a principles-based framework to determine whether an issuer should recognize the modification or exchange as an adjustment to equity or an expense.

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