Defining Issues | March 2024
ASU 2024-01 provides four cases illustrating the scope application of ASC 718 for profits interest awards.
The determination of whether profits interest awards are share-based payment arrangements in the scope of ASC 718, or like a cash bonus or profit-sharing arrangement in the scope of ASC 710, requires judgment. The new illustrative example clarifies whether the guidance in ASC 718 should be applied to profits interest awards.
Effective date | Public entities | All other entities |
|---|---|---|
Annual periods – Fiscal years beginning after | December 15, 2024 | December 15, 2025 |
Interim periods – In fiscal years beginning after | December 15, 2024 | December 15, 2025 |
Early adoption is permitted. |
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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.
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Podcast: Scope of profits interest and similar awards
We discuss the FASB's ASU 2024-01 on the scope of ASC 718 for profits interest awards.
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Handbook: Employee benefits
Our in-depth guide to accounting for employee benefits under ASC 420, ASC 710, ASC 12, ASC 15 and ASC 718-40.
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Handbook: Share-based payment
Latest edition: KPMG explains in-depth the accounting under ASC 718.
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