“FASB clears the air on profits interest awards guidance.”

TLDR:

• FASB released an accounting standards update for profits interest awards
• New guidance helps entities determine how to account for profits interest and similar awards

The Financial Accounting Standards Board (FASB) recently provided illustrative guidance to help entities determine whether profits interest and similar awards should be accounted for as share-based payment arrangements within the scope of FASB’s stock compensation rules. Private companies often offer profits interest and similar awards to align compensation with company performance. The update aims to address differences in practice in accounting for these awards and offers guidance on whether they should be accounted for under Topic 718 or similar to cash bonus arrangements under Topic 710. The new guidelines help entities determine the appropriate accounting treatment for profits interest awards.

The update takes effect for public companies for annual periods beginning after Dec. 15, 2024, with early adoption allowed. For all other entities, the amendments take effect for annual periods starting after Dec. 15, 2025. Separately, FASB announced the appointment of Jackson Day as the director of technical activities, starting in July. Day brings extensive experience in accounting, including roles at Ernst & Young and the Securities and Exchange Commission.