Six days after the Financial Accounting Standards Board floated a rule change on how companies must account for modified stock awards, the practical question for businesses is narrowing: who actually gets caught by this, and what do they need to change?
The answer centers on a narrow but common scenario. When an employee leaves a company — whether through layoff, retirement, or a negotiated exit — employers sometimes adjust the terms of stock awards that haven’t yet vested. That could mean letting shares continue vesting on the original schedule, or giving someone more time to exercise options after their last day. Companies that do this have operated in a gray area on the accounting side: it’s been unclear whether that kind of after-the-fact change lets the award shift out of standard stock-compensation accounting and into a different set of accounting rules.
That uncertainty stems from two adjacent provisions in the stock-compensation guidance that appear to point in different directions, according to Bob Michaels, a partner in CrossCountry Consulting’s accounting advisory practice.
“ASC 718-10-35-10 identifies when a share-based award stops being measured under Topic 718’s stock compensation guidance and falls under different GAAP instead,” Michaels said on September 8, 2026. “One of those events is when the grantee no longer is an employee. That is inconsistent with the very next paragraph, which describes modification guidance applying only after a grantee ‘vests in the award and is no longer an employee.'”
The proposal would close that gap. Going forward, a modified stock award would generally remain subject to Topic 718 after the recipient leaves the company, so long as the award remains unvested. The proposed exception would apply when the modification occurs after the person has both fully vested in the award and left the company. That’s a narrower exit than some companies may have assumed applied.
Who’s actually affected
The rule isn’t limited to laid-off or retiring employees in the traditional sense. The underlying accounting guidance covers three overlapping groups: employees who’ve left, contractors or vendors no longer providing goods or services, and even former customers who received stock as part of a business arrangement. That breadth exists because of a 2018 rule change that folded nonemployee stock awards into the same accounting framework used for employees, specifically to keep similar transactions treated consistently.
In practice, that means the businesses most likely to notice this change are those that routinely renegotiate equity terms as part of exit arrangements — companies with vesting acceleration clauses, extended option-exercise windows, or performance-based awards tied to a departure agreement. For those companies, the accounting doesn’t necessarily end when the employment relationship does.
“Practically, this fact pattern is common in workforce reductions, executive departures, and severance negotiations where someone leaves the company holding unvested options or RSUs, and the company modifies the award’s terms,” Michaels said. “The proposed amendment removes that argument, and the award stays under Topic 718 until it vests, regardless of what happens to the person’s employment status along the way.”
In other words, the proposal would foreclose the view that a recipient’s departure alone moves an unvested, modified award out of Topic 718.
Why standard-setters are asking companies to weigh in
Notably, the FASB isn’t claiming to know exactly how disruptive this will be. The proposal directly poses the question to industry: are more of these instruments expected to remain under stock-compensation accounting rather than shifting to other guidance, and do companies agree with that outcome? That’s an open question, not a settled one — which is part of why the board flagged this specific issue, along with a few others, for extra attention from commenters.
At the same time, this change is riding inside a much larger, routine cleanup package covering 21 separate accounting issues. FASB has said the type of fixes bundled into this project generally aren’t expected to significantly change practice or impose major new costs for most entities. Whether that holds for this particular change is essentially what they’re asking affected companies to confirm.
What happens next
Nothing is final. Companies, auditors and trade groups have until November 19, 2026, to file comments — and FASB hasn’t yet set an effective date or decided whether early adoption will be allowed. For now, businesses that routinely restructure equity as part of employee departures have a narrow window to flag concerns before the accounting treatment they may have relied on is formally closed off.
