The following selected ASUs were issued by the FASB during the second quarter. A complete list of all ASUs issued in 2014 is included in Appendix C.
Stock Compensation Tied to Performance Targets
Affects: All Entities
- On June 19, 2014, the FASB issued ASU 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period, which addresses an issue that had been overlooked by U.S. GAAP. Companies often give employees stock compensation tied to profit targets or an initial public offering, and it’s common for the vesting conditions to permit the employees to leave the company before the performance targets are reached or the shares vest. With this amendment, the performance target should be treated as a performance condition and should not be reflected in the estimate of the fair value of stock award on the day it’s granted. The compensation cost should be recognized in the period in which it’s probable that the target will be achieved and should represent the compensation cost tied to the periods the employee was with the company. If it’s probable that the performance target will be achieved before the employee leaves, the remaining compensation cost should be recognized over the rest of the time the employee is with the company. The total compensation cost should reflect the number of awards the company expects to vest, and the cost should be adjusted to reflect the awards that vest.
The amendments are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The effective date is the same for both public business entities and all other entities. The changes can be applied to all stock awards granted or modified after the amendments are effective. A second option is to apply the changes to stock awards with performance targets that are outstanding at the start of the first fiscal year in the financial statements and to all stock awards that are granted or modified after the effective date.
Development Stage Entity Concept Eliminated
Affects: All Entities
- On June 10, 2014, the FASB issued ASU 2014-10, Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation, which eliminates the concept of a development stage entity (DSE) in its entirety from current accounting guidance. Therefore, the current incremental reporting requirements for a DSE, including inception-to-date information, will no longer apply. The ASU also clarifies that the disclosures in FASB ASC 275, Risks and Uncertainties, apply to entities for which planned principal operations have not yet commenced. Amendments to the consolidation guidance may result in more DSEs being considered variable interest entities.
The removal of the DSE reporting requirements and clarification to the risks and uncertainties disclosure requirements are effective for public business entities for annual reporting periods beginning after December 15, 2014, and interim periods therein. For all other entities, the amendments are effective for annual reporting periods beginning after December 15, 2014, and interim reporting periods beginning after December 15, 2015. Retrospective application is required, except for the clarification of FASB ASC 275, which should be applied prospectively.
The amendment to the consolidation guidance is effective for public business entities for annual reporting periods beginning after December 15, 2015, and interim periods therein. For all other entities, the amendment is effective for annual reporting periods beginning after December 15, 2016, and interim reporting periods beginning after December 15, 2017. The changes are to be applied to existing investments as of the date of adoption. Retrospective application is required.
Early adoption of the new guidance is permitted.
New Revenue Recognition Guidance
Affects: All Entities
- On May 28, 2014, the FASB and IASB completed work on their four-year joint project to develop a single revenue recognition model. The FASB issued ASU 2014-09, Revenue from Contracts with Customers, which will result in potentially significant changes for certain industries, and some level of change for almost all entities. The scope of the guidance applies to revenue arising from contracts with customers, except for the following: lease contracts, insurance contracts, contractual rights and obligations within the scope of other guidance, and non-monetary exchanges between entities in the same line of business to facilitate sales to customers. The core principle of the new guidance is that an entity should recognize revenue to reflect the transfer of goods and services to customers in an amount equal to the consideration that the entity receives or expects to receive. To apply that principle, an entity should (1) Identify the contract with a customer; (2) Identify the separate performance obligations in the contract; (3) Determine the transaction price; (4) Allocate the transaction price to the separate performance obligations; and (5) Recognize revenue as each performance obligation is satisfied.
The new revenue recognition guidance is effective for public entities for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. For nonpublic entities, the guidance is effective for annual reporting periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018.