A change to the Compensation - Stock Compensation (Topic 718 - formerly known as FAS 123R) was instituted this month and will be applicable to "any entity that changes the terms or conditions of a share-based payment award." Those companies affected by this change should review their overall procedures and internal controls to ensure they are updated to include these new requirements. Be sure to update your testing procedures too so this new requirement isn't missed during controls testing.
A snippet of the new requirement is below. Read the full requirement here.
Who Is Affected by the Amendments in This Update?
The amendments in this Update affect any entity that changes the terms or conditions of a share-based payment award.
What Are the Main Provisions?
The amendments in this Update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718.
An entity should account for the effects of a modification unless all the following are met:
- 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.
- 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.
- 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. The current disclosure requirements in Topic 718 apply regardless of whether an entity is required to apply modification accounting under the amendments in this Update.
When Will the Amendments Be Effective?
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 statements have not yet been made available for issuance.
The amendments in this Update should be applied prospectively to an award modified on or after the adoption date.
Update
On 5/10/2017, FASB issued this update to provide clarity over the word "modification:"
Confusion has stemmed from the word "modification," according to the standard. It's defined by FASB as "a change in any of the terms or conditions of a share-based payment award," a definition some stakeholders found too broad, leading to diversity in practice. The new standard provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting.
In addition to reducing diversity in practice, the standard is designed to lower costs and complexity for entities when they apply the guidance in Topic 718.
- See more at: http://www.journalofaccountancy.com
