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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
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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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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© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.
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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© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.