FASB issues final ASU to clarify scope of stock compensation guidance

Mar 29, 2024
Audit Financial reporting Stock compensation

On March 21, 2024, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2024-01, Compensation—Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards. The ASU was issued in response to feedback received by the FASB requesting guidance on how entities should determine the appropriate guidance to apply when accounting for the issuance of profits interest units and similar types of awards.

The ASU adds an example with four fact patterns to subtopic 718-10, Compensation–Stock Compensation—Overall, to assist preparers of financial statements in determining whether profits interest and similar awards should be accounted for within the scope of the guidance in Topic 718 or Topic 710, Compensation—General. Additionally, ASU 2024-01 amends the structure of paragraph 718-10-15-3 to improve the clarity and make the guidance more operational. The ASU only addresses the scope determination and does not amend the recognition, classification, or measurement guidance in either Topic 710 or Topic 718.

Effective date and adoption

ASU 2024-01 applies to all entities. The ASU is effective for public business entities (PBEs) for interim and annual periods for fiscal years beginning after December 15, 2024. Entities other than PBEs have an additional year to adopt the ASU (i.e., the guidance is effective for fiscal years beginning after December 15, 2025, and the interim periods therein). Early adoption is permitted for all entities and for interim or annual financial statements that have not yet been issued or made available for issuance. 

Entities may choose to adopt ASU 2024-01 on a prospective or retrospective basis. If the ASU is applied prospectively, entities must include disclosure of the nature of and the reason for the change in accounting principle. If the ASU is adopted retrospectively, entities must include the required disclosure for a change in accounting principle as detailed in Topic 250.

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