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,听 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 鈥� Fiscal years beginning after | December 15, 2024 | December 15, 2025 |
Interim periods 鈥� In fiscal years beginning after | December 15, 2024 | December 15, 2025 |
Early adoption is permitted. | 听 | 听 |
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.鈥�
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听ASU 2024-01 which provides an illustrative example.鈥�
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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