Scope of Modification Accounting in Topic 718

ACCOUNTING STANDARDS UPDATE NO. 2017-09, COMPENSATION—STOCK COMPENSATION (TOPIC 718): SCOPE OF MODIFICATION ACCOUNTING


Overview


On May 10, 2017, the FASB issued Accounting Standards Update No. 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting. The new guidance provides clarity and reduces both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation—Stock Compensation, to a change to the terms or conditions of a share-based payment award.

Specifically, the Update:
  1. Requires an entity to account for the effects of a modification unless all the following are met:
    1. The fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the modified award is the same as the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the original award immediately before the original award is modified. If the modification does not affect any of the inputs to the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification.
    2. The vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified.
    3. The classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified.
  2. Requires an entity to provide the current disclosures in Topic 718 regardless of whether the entity is required to apply modification accounting.

Effective Dates


The amendments in this Update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017.

Early adoption is permitted, including adoption in any interim period, for (1) public business entities for reporting periods for which financial statements have not yet been issued and (2) all other entities for reporting periods for which financial statement have not yet been made available for issuance.

An entity should apply the amendments in this Update prospectively to an award modified on or after the adoption date.

What Organizations Are Affected by the New Guidance in the Update?


The new guidance affects any entity that changes the terms or conditions of a share-based payment award.

Additional Information

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