The Advisors' Blog

One of the things I find tricky about the prescriptive rules governing the disclosure of executive compensation arrangements is their reference to and dependence on how stock and option awards are accounted for and reflected in the financial statements. The Summary Compensation Table Chapter of the Executive Compensation Disclosure Treatise has 170 references to ASC 718!  So, when I saw that this BDO publication on ASC 718 had a section called “Accounting for Share-Based Payments In a Nutshell,” I picked it up to peruse!

Here’s its brief explanation of a difficult topic — modifying an existing award’s terms and conditions — from the “In a Nutshell” section:

– An entity may change the terms or conditions of an existing share-based payment award. An entity must account for a modification if it affects the award’s classification, vesting, or fair value.

– A modification to an equity-classified award is treated as an exchange of the original award for a new award with equal or greater value. If a grantee receives incremental value as a result of the modification, additional compensation cost is recognized on the modification date (for vested awards) or over the remaining vesting period (for unvested awards).

– A modification to a liability-classified award is remeasured based on the fair value of the award using the modified terms at the modification date and each reporting period thereafter, irrespective of whether the modification resulted in incremental value to the grantee.

Modifications that change an award’s vesting conditions affect the amount of compensation cost to be recognized based on whether the award is probable of vesting under its new terms. The accounting for a modification that results in reclassifying an award depends on the award’s classification before and after the modification.

At 258 pages long, the blueprint goes into much greater detail on this and other ASC 718-related topics.

– Meredith Ervine