More Clarity Coming on Modifying Stock Award Accounting

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By Steve Burkholder

Nov. 18 — Companies will have clearer rules on which changes in a stock compensation award might lead to recording compensation costs under a proposal by U.S. accounting rulemakers.

The Financial Accounting Standards Board issued the draft standards update on stock compensation and modification accounting Nov. 17. FASB asked that comments be submitted on the planned changes to ASC 718 by Jan. 6.

Accounting for stock compensation such that a modification of a compensation award is judged to have taken place often has a marked effect on how much expense a company must book to reflect the change.

An entity that changes an award—kicking in modification accounting under ASC 718—is generally required to calculate and record the incremental fair value of the modified award as compensation cost on the date of modification—for vested awards—or over the remaining service period for unvested awards, FASB said in the proposed standards update.

Explanatory Examples

FASB acknowledges in the proposal that the definition of the term “modification” is broad.

To address that, the board would provide a non-exhaustive list of illustrative examples. The examples contain changes in terms or conditions of stock compensation awards and state whether the changes would trigger modification accounting.

Triggering, Non-triggering Events

Examples of changes to awards that FASB believes generally would require modification accounting include:

  •  repricings of options that lead to a change in the options’ value;
  •  changes in service condition; and
  •  changes in a performance condition or a market condition.
Examples of changes to awards that the board believes generally wouldn’t require modification accounting include:
  •  changes that are administrative in nature, such as a change to the company name, company address or plan name; and
  •  changes in an award’s net settlement provisions related to tax withholding that don’t affect the award’s classification.

To contact the reporter on this story: Steve Burkholder in Norwalk, Conn. at

To contact the editor responsible for this story: S. Ali Sartipzadeh at

For More Information

The draft accounting standards update is available at .

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