Regulatory updates

Regulatory updates

Updates from FASB

Back

Certain entities provide employees or non-employees with ‘profits interest’ awards to align compensation with an entity’s operating performance and provide the holders with the opportunity to participate in future profits and/or equity appreciation of the entity.

Since ‘profits interest’ holders only participate in future profits and/or equity appreciation and have no rights to the existing net assets of the partnership, stakeholders indicated to the Financial Accounting Standards Board (FASB), that it can be complex to determine whether a ‘profits interest’ award should be accounted for as a share-based payment arrangement (Topic 718), or similar to a cash bonus or profit-sharing arrangement (Topic 710, Compensation—General). Thus, the stakeholders highlighted the existing diversity in practice.

Accordingly, in March 2024, the Financial Accounting Standards Board (FASB) issued the ASU on Compensation – Stock Compensation (Topic 718), Scope Application of Profits Interest and Similar Awards. The ASU has added an illustrative example that includes four fact patterns to demonstrate how an entity should apply the guidance to determine whether a ‘profits interest’ award should be accounted for in accordance with Topic 718.

Effective Date: For Public Business Entities (PBEs), the amendments would be effective for annual periods beginning after 15 December 2024, and interim periods within those annual periods.

For all other entities, the amendments would be effective for annual periods beginning after 15 December 2025, and interim periods within those annual periods.

To access the text of the ASU, please click here

Our Insights

Tools and Enablers
Resources
Events and Webinars
Sectoral Insights

Reach out to us

;