ASU 2010-13 is an update to FASC 718 – Compensation – Stock Compensation and is effective for fiscal years beginning on or after December 15, 2010. The ASU would have been considered an Emerging Issues Task Force (EITF) issuance before the Codification.
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FASC 718 contains a rule that if a share-based award contains a condition that is not a service, performance or market condition, then that award is to be classified as a liability with changes in fair value being recorded in earnings each reporting period. A condition that would not be a service, performance or market condition could be denominating the exercise price in a foreign currency, such as the US dollar when the entity is based in Zimbabwe. This ASU clarifies that if the exercise price is denominated in the foreign operation’s functional currency, the currency in which the employee’s pay is denominated or the currency of a market in which a substantial portion of the entity’s equity securities trades.
For example, if the entity is based in Zimbabwe, but has its stock listed and traded on the NYSE, a share-based award denominated in US dollars would not be classified as a liability award if it otherwise qualifies as an equity award.
If this ASU changes the classification of a share-based award, the entity should record a cumulative-effect adjustment to the opening balance of retained earnings. The cumulative-effect should be applied to all share-based awards outstanding and as if the ASU has been in effect since the award was granted.