Key impacts
Determining whether a profits interest award should be accounted for as a share-based payment arrangement or other compensation requires judgement based on the facts and circumstances of the specific transaction.
The Private Company Council (PCC) identified scope application issues related to accounting for profits interest awards and recommended that the FASB add a project to address these issues, which impact both private and public business entities who issue profits interest and other similar awards. In response, the FASB added a project to its agenda in December 2022 and, on March 20, 2024, issued ASU 2024-01 which provides an illustrative example.
The illustrative example includes four fact patterns to demonstrate how an entity would apply the scope guidance in paragraph 718-10-15-3 to determine whether profits interest awards should be accounted for in accordance with ASC 718. The ASU is intended to reduce complexity and diversity in practice.