Effectus Group comments on FASB’s Proposed Accounting Standards Update—Compensation—Stock Compensation (Topic 718): Scope Application of Profits Interest Awards

In our comment letter, we support the FASB’s efforts to clarify the scope application for profits interest awards. We expect that the proposed amendments will enhance comparability across entities and reduce complexity in determining whether profits interest awards should be accounted for under ASC 718 or other topics. We had the following observations that we believe would be helpful to improve the operability of the proposed updates:

•  In the proposed illustrative examples, FASB should also clarify that the legal form of an award is not determinative of the scope application, provided that other facts and circumstances are the same.
• The proposed updates should clarify whether profits interest awards should be accounted for under ASC 718 if any part of the award is indexed to the entity’s share price, regardless of the magnitude, predominance or likelihood that entity’s share price or other factors may have on the value conveyed to the grantee.
• For retrospective adoption of the proposed updates, we proposed that the FASB should allow certain practical expedients to better enable entities to assess cost, benefits and preferability of each of the adoption methods.

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