The Financial Accounting Standards Board has finalized new accounting requirements around stock compensation intended to resolve differences in how companies treat awards that have specific performance targets attached.

FASB's Emerging Issues Task Force studied the issue and determined companies have followed different approaches for how to account for share-based payment awards when companies might attach performance targets like hitting a certain profitability target or selling share in an initial public offering. Not all companies require the employee to still be working for the company when the performance target is achieved, FASB says, leading to difference in interpretation for how to treat vesting.

The new guidance will apply to any company that grants share-based payments where the terms of the award include a performance target that affects vesting, and the target can be met even after an employee is no longer employed, such as after retirement. The amendment, Accounting Standards Update No. 2014-12, says a performance target that affects vesting and that can be achieved after employment is terminated should be treated as a performance condition. “As such, the performance target should not be reflected in estimating the grant-date fair value of the award,” FASB wrote in its summary of the new guidance.

FASB says the new guidance for Generally Accepted Accounting Principles is different from what is currently required in International Financial Reporting Standards. FASB Chairman Russ Golden has said the board is more focused these days on what is good for GAAP rather than what is good for convergence of GAAP to IFRS.

In December 2013, the International Accounting Standards Board issued an amendment to its existing requirements to define the term “performance condition.” Under the new definition, a performance target cannot be extended beyond the end of an employee's service period. As such, targets are accounted for as nonvesting conditions that are reflected in the grant-date fair value of the award.

The new GAAP guidance takes effect for interim or annual periods beginning after Dec. 15, 2015, giving companies more than a year to prepare for the new requirements.