FASB Issues FAS 123(R)-2 Guidance on Grant Date

By: Cydney Posner

The FASB has issued FAS 123(R)-2, entitled Practical Accommodation to the Application of Grant Date as Defined in FASB Statement No. 123(R), which provides guidance on the definition of grant date. Under FAS 123, one of the criteria for determining whether a grant has been made is that there be a "mutual understanding" by the employer and employee of the key terms and conditions of the award. The "mutual understanding" requirement has caused a great deal of consternation because it does not reflect historic practice. In light of the practical difficulties of personally communicating the key terms and conditions of an award, FASB has elected to provide a practical accommodation to the problem. The FASB staff position is now that, in determining the grant date of an award subject to FAS 123(R), assuming all other criteria in the grant date definition have been met, a mutual understanding of the key terms and conditions of an award to an individual employee will be presumed to exist at the date the award is approved in accordance with the relevant corporate governance requirements (that is, by the Board or Board Committee or by management with the relevant authority) if both of the following conditions are met:

• The award is a unilateral grant and, therefore, the recipient does not have the ability to negotiate the key terms and conditions of the award with the employer; and
• The key terms and conditions of the award are expected to be communicated to an individual recipient within a relatively short time period from the date of approval. A relatively short time period is that period in which an entity could reasonably complete all actions necessary to communicate the awards to the recipients in accordance with the entity’s customary human resource practices.

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