The Financial Accounting Standards Board is looking for feedback on two proposed updates to accounting standards -- one on compensation and the other on hedging -- that were recommended by the board's Emerging Issues Task Force.

The proposed compensation guidance would address the accounting for share-based payments when the terms of a specific award establish that a performance target could be achieved even after the requisite service period. That might occur, for example, if a performance target such as an earnings metric or an initial public offering is met in a particular period, but the employee was also eligible to retire or resign before the end of that period and still is entitled to benefit from the award.

Some companies account for such performance targets as performance conditions that affect the vesting, and therefore do not reflect the performance target in setting the fair value on the grant date. Others treat such performance targets as nonvesting conditions that affect the grant date fair value.

The proposed guidance attempts to settle some diversity in practice that has developed in the absence of specific guidance in existing accounting rules. The guidance says performance targets that could be met after the required service period is complete should be treated as performance conditions that affect the vesting of the award. As a result, FASB says, compensation cost would be recognized if it is probably that the performance condition would be achieved.

The second proposal focuses on determining whether the host contract in a hybrid financial instrument issued in the form of a share is more like debt or equity. Companies often raise capital by issuing different classes of shares where the holder will have certain preferences or rights over other shareholders, such as conversion rights, redemption rights, voting powers, liquidation and dividend payment preferences, among others. Any of those embedded features could meet the definition of a derivative, so such shares are considered hybrid financial instruments.

Companies typically follow one of two methods for determining whether such a hybrid instrument is more like debt or equity, as required under the rules for accounting for such instruments. The two methods can yield different accounting results, even when the economics are otherwise similar, prompting EITF and FASB to consider a change in the rules. FASB's proposal contains guidance meant to help a company determine which accounting treatment is appropriate based on its specific facts and circumstances. FASB recently declined to provide more detailed share-based payment guidance around establishing a grant date when discretionary features are included in awards.

FASB is accepting comments on both proposals through Dec. 23, 2013.