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FASB Issues ASU 2017-09 Which Clarifies Accounting for Modifications of Share-Based Payment Awards

Jul 6, 2017

Presently, ASC 718, Stock Compensation, defines a modification as “a change in any of the terms or conditions of a share-based payment award,” The definition is broad and its interpretation in practice results in diversity as to whether a change to the terms or conditions of an award is substantive.

FASB recently issued ASU 2017-09, Scope of Modification Accounting, to clarify which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting under ASC 718.  

What you need to know about ASU 2017-09:

Under the new guidance, an entity will not apply modification accounting to a share-based payment award if all of the following remain unchanged immediately before and after the change of terms and conditions:

  • The award’s fair value (or calculated value or intrinsic value, if those measurement methods are used),
  • The award’s vesting conditions, and
  • The award’s classification as an equity or liability instrument.

Examples of changes to an award that generally do not require modification accounting include the following:

  • Changes that are administrative in nature, such as a change to the company name, company address, or plan name.
  • Changes in an award’s net settlement provisions related to tax withholdings that do not affect the classification of the award.

Examples of changes to an award that generally require modification accounting include the following:

  • Repricing of share options that results in a change in value of those share options,
  • Changes in a service condition,
  • Changes in a performance condition or a market condition,
  • Changes in an award that result in a reclassification of the award (equity to liability or vice versa), and
  • Adding an involuntary termination provision in anticipation of a sale of a business unit that accelerates vesting of the award.

Transition and effective date

The ASU is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017 for all entities. Early adoption is permitted, including adoption in any interim period for which financial statements have not yet been issued or made available for issuance. The ASU will be applied prospectively to awards modified on or after the adoption date.


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Mark Sabates

Mark Sabates CPA, is an EisnerAmper Audit Partner with experience in public and non-public company audits and initial public offerings, and an industry focus on technology, manufacturing and distribution.

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