Scope Application of Profits Interest Awards: Compensation—Stock Compensation (Topic 718)
Last updated on May 15, 2023. Please refer to the Current Technical Plan for information about the expected release dates of exposure documents and final standards.
(Sections updated on the date above are indicated with an asterisk *)
The objective of this project is to clarify generally accepted accounting principles (GAAP) by adding illustrative examples to the Codification that would demonstrate how an entity would apply the scope guidance in Subtopic 718-10, Compensation—Stock Compensation—Overall, to determine whether a profits interest or similar award should be accounted for by applying Topic 718.
In October 2018, the FASB received an agenda request that included various issues related to determining the appropriate scope of the guidance applicable to profits interest. Most commonly, either Topic 718 or Topic 710, Compensation—General, are used. The agenda request noted that because of the lack of authoritative guidance, some entities may be applying a “facts and circumstances” approach that involves the consideration of numerous factors to determine whether a profits interest award is share-based payment or is a form of deferred compensation. The scope issue along with other related issues have been discussed with the Private Company Council (PCC) and the PCC Technical Agenda Consultation Group at various meetings along with staff research and outreach that was conducted by the FASB staff on the scope issue.
At its April 22, 2022 meeting, the PCC voted to recommend that the Board add a project to its technical agenda to address the issue of determining the appropriate scope of guidance applicable to profits interest awards. The PCC recommended that the project focus on the development of illustrative examples based on the existing guidance in paragraph 718-10-15-3.
The Board added a project to its technical agenda that would clarify GAAP by adding illustrative examples to the Codification to demonstrate how an entity would apply the scope guidance in Subtopic 718-10 to determine whether a profits interest or similar award should be accounted for in accordance with Topic 718.
Transition and Transition Disclosures
The Board decided to require that an entity apply the guidance either (1) retrospectively to all prior periods presented in the financial statements or (2) prospectively to awards granted or modified on or after the effective date with qualitative disclosure about the nature of and reason for the change in accounting principle.
Analysis of Costs and Benefits
The Board concluded that it has received sufficient information and analysis to make an informed decision on the expected costs of the proposed amendments and that the expected benefits of those amendments would justify the expected costs.
A summary of the Board’s tentative decisions reached to date can be found here.
Last updated on May 15, 2023. Please refer to the Current Technical Plan for information about the expected release dates of exposure documents and final standards.
(Sections updated on the date above are indicated with an asterisk *)
Objective:
The objective of this project is to clarify generally accepted accounting principles (GAAP) by adding illustrative examples to the Codification that would demonstrate how an entity would apply the scope guidance in Subtopic 718-10, Compensation—Stock Compensation—Overall, to determine whether a profits interest or similar award should be accounted for by applying Topic 718.
Background:
In October 2018, the FASB received an agenda request that included various issues related to determining the appropriate scope of the guidance applicable to profits interest. Most commonly, either Topic 718 or Topic 710, Compensation—General, are used. The agenda request noted that because of the lack of authoritative guidance, some entities may be applying a “facts and circumstances” approach that involves the consideration of numerous factors to determine whether a profits interest award is share-based payment or is a form of deferred compensation. The scope issue along with other related issues have been discussed with the Private Company Council (PCC) and the PCC Technical Agenda Consultation Group at various meetings along with staff research and outreach that was conducted by the FASB staff on the scope issue.
At its April 22, 2022 meeting, the PCC voted to recommend that the Board add a project to its technical agenda to address the issue of determining the appropriate scope of guidance applicable to profits interest awards. The PCC recommended that the project focus on the development of illustrative examples based on the existing guidance in paragraph 718-10-15-3.
Exposure Draft(s):
On May 11, 2023, the Board issued a proposed Accounting Standards Update, Compensation—Stock Compensation (Topic 718): Scope Application of Profits Interests Awards. The Due date for comment letters is July 10, 2023.- Download the proposed Accounting Standards Update.
Read the press release on the proposed Accounting Standards Update.
Decisions Reached at Last Meeting (December 14, 2022):
The Board added a project to its technical agenda that would clarify GAAP by adding illustrative examples to the Codification to demonstrate how an entity would apply the scope guidance in Subtopic 718-10 to determine whether a profits interest or similar award should be accounted for in accordance with Topic 718.
Transition and Transition Disclosures
The Board decided to require that an entity apply the guidance either (1) retrospectively to all prior periods presented in the financial statements or (2) prospectively to awards granted or modified on or after the effective date with qualitative disclosure about the nature of and reason for the change in accounting principle.
Analysis of Costs and Benefits
The Board concluded that it has received sufficient information and analysis to make an informed decision on the expected costs of the proposed amendments and that the expected benefits of those amendments would justify the expected costs.
Tentative Board Decisions Reached to Date (as of December 14, 2022):
A summary of the Board’s tentative decisions reached to date can be found here.
The Board meeting minutes, handouts, and videos are provided for the information and convenience of constituents who want to follow the Board’s deliberations. All of the conclusions reported are tentative and may be changed at future Board meetings. Decisions become final only after a formal written ballot to issue a final standard.
The following are links to the minutes for each meeting. To view Board meetings and handouts from the past 90 days, click here.
The following are links to the minutes for each meeting. To view Board meetings and handouts from the past 90 days, click here.
| December 14, 2022 | Board Meeting—The Board added a project to its technical agenda that would clarify GAAP by adding illustrative examples to the Codification to demonstrate how an entity would apply the scope guidance in Subtopic 718-10 to determine whether a profits interest or similar award should be accounted for in accordance with Topic 718. The Board directed the staff to draft a proposed Accounting Standards Update for vote by written ballot. |
Stakeholders are asked to review and provide comments on the proposed Update by July 10, 2023.
Elizabeth Gagnon
Supervising Project Manager
egagnon@fasb.org
Jennifer Kimmel
Practice Fellow
jkimmel@fasb.org
Emerson Porter
Postgraduate Technical Assistant
eporter@fasb.org
Connor Shea
Postgraduate Technical Assistant
cshea@fasb.org
Supervising Project Manager
egagnon@fasb.org
Jennifer Kimmel
Practice Fellow
jkimmel@fasb.org
Emerson Porter
Postgraduate Technical Assistant
eporter@fasb.org
Connor Shea
Postgraduate Technical Assistant
cshea@fasb.org
The staff has prepared this summary for information purposes only. Any Board decisions are tentative and do not change current accounting. Official positions of the FASB are determined only after extensive due process and deliberations.