The FASB has issued ASU 2024-01, Compensation - Stock Compensation - Scope Application of Profits Interest and Similar Awards that is intended to reduce diversity in practice and provide more consistent information to users of financial statements. ASU 2024-01 provides an additional illustrative example that includes four fact patterns to demonstrate how an entity should apply the existing scope guidance to determine whether a profits interest award should be accounted for under the general compensation guidance in Topic 710 or as stock-based compensation within the scope of Topic 718. Generally, awards that entitle the grantee to receive either an equity instrument or a cash settlement that is based, at least in part, on the price of the issuing entity’s equity are accounted for under Topic 718. These amendments are meant to improve the overall clarity and operability of Topic 718 without changing the existing guidance.

The provisions of ASU 2024-01 are effective for fiscal years beginning after December 15, 2024 for public business entities and for fiscal years beginning after December 15, 2025 for all other entities. Early adoption is permitted.  The amendments can be applied either prospectively or retrospectively. 

The full text of ASU 2024-01 can be found here.

Published: 05/01/2024

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