FASB proposals address modification accounting, liabilities, and equity

Financial statement preparers would receive specific guidance on when to apply modification accounting under a new FASB proposal.

Proposed Accounting Standards Update, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, would clarify which changes to the terms or conditions of a share-based payment award require application of modification accounting.

Under the proposal, an entity would account for the effects of a modification unless all of the following are the same immediately before and after the modification:

• The fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the award.
• The vesting conditions of the award.
• The classification of the award as an equity instrument or liability instrument.

Comments were due Jan. 6.

Financial instruments and complexity

FASB also issued a two-part proposal that is designed to address the complexity related to applying GAAP to certain financial instruments associated with liability and equity.

In Part I of the proposal, FASB addresses the complexity of accounting for certain financial instruments with down round features, which result in the strike price being reduced on the basis of pricing of future equity offerings.

Part II of the proposal would recharacterize the indefinite deferral of certain provisions of FASB Accounting Standards Codification (ASC) Subtopic 480-10, Distinguishing Liabilities From Equity—Overall. The provisions, which are currently presented as pending content in the ASC, would be recharacterized as a scope exception. The Part II proposal would not have an accounting effect.

Comments can be submitted by Feb. 6 at FASB’s website.