423 anheuser busch anheuser busch is a worldwide

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: tion expense. The fair value estimated by option pricing models, in SIIA's opinion, does not accurately reflect the actual expense, as the estimated amount is not what will be realized by employees. Therefore, valuation using a modified option pricing models will result in overstated expense in financial statements. Another c oncern o f S IIA i s t he l ack o f s tandardization i n v aluation methodologies. Considering that SFAS 123 permits the use of the BlackScholes model or any other valuation model, which includes six variables, companies will start developing new approaches to establish a fair value of stock-based compensation plans. The choice of valuation model, combined with company-specific calculations, provides inconsistent and incomparable results to investors. From the investors' point of view, comparing the cost of stock options for different companies with different stock option plans and 57 different variations of the Black-Scholes model will not be meaningful in any way. In conclusion, SIIA stresses its strong belief that the intrinsic value method is the most appropriate method for measuring stock-based compensation expense, as this method would provide most valuable investor information. 4.2.3 Anheuser-Busch Anheuser-Busch is a worldwide operator in beer, adventure park entertainment and packaging. Its interests also cover aluminium beverage container recycling, malt production, rice milling, real estate development and transportation services (www.anheuser-busch.com). In its Comment Letter, Anheuser-Busch states that "…stock option accounting is not an issue of either transparency or full disclosure." In the company's opinion, all the information investors need is already available in companies' annual reports. Anheuser-Busch deems FASB's proposed multiple-choice approach to transition and disclosure as ill advised. Providing several adoption alternatives for companies will only confuse investors and in no way will add more clarity of disclosure. The suggestion of Anheuser-Busch is to select a single method of transition, namely the full restatement method, as it is the simplest one. The information, which is necessary to restate the previous periods, is already available as companies had to provide pro forma disclosures since the introduction of SFAS 123. Besides, it places all companies choosing to expense stock options on the same footing. The relocation of disclosure regarding the income statement impact of stock options is, in Anheuser-Busch's view, a form-over-substance measure. Moving this disclosure from the footnotes to the "Summary of Significant Accounting Policies" section won't increase the effectiveness of disclosure. However, it will elevate it over other disclosures, which is not justified. It is the users of financial statements, who have to determine the importance of individual disclosures based on their specific investment criteria, and not the placement of disclosure within the report. 4.2.4 Accounting and Valuation Group of UBS Warburg Equity Research The Accounting and Valuation Group of UBS Warburg Equity Research (UBS Warburg) g ives a dvice o n f inancial a ccounting a nd e quity v aluation 58 methodology to UBS Warburg equities clients and to equity analysts within UBS Warburg Equity Research (www.ubswarburg.com). UBS Warburg believes that FASB's proposal to permit three methods of transition would further impair the comparability and consistency of reported results. Users of financial statements would not only have to distinguish which companies have adopted the fair value based method, but will also have to determine which transition method these companies used. In UBS Warburg’s view, stock options meet the recognition criteria, i.e. there is a cost to shareholders when stock options are issued, the cost can be measured with sufficient reliability and the information is both, value relevant and reliable. Therefore, UBS Warburg recommends FASB to endorse the fair value based method of accounting for stock option plans. It is the company's belief that the fair value based method better reflects economic reality and economic position of companies. UBS Warburg supports the adoption of only one transition method. Retroactive restatement is considered to be the most appropriate as it provides consistent and comparable results. However, UBS Warburg stresses that if FASB is unable to adopt full retroactive restatement, then the modified prospective method would be a reasonable compromise. 4.2.5 JPMorgan Chase & Co. JPMorgan Chase & Co. (JPMorgan) applauds the attempt of FASB and IASB to bring convergence to accounting standards around the world. However, it disagrees with the main provisions of the proposed amendment. JPMorgan advises the continued use of the prospective method of transition, which is required by SFAS 123. Although the firm is not opposed to the use of other two alternative methods, it says that since many companies, which adopted fai...
View Full Document

This document was uploaded on 10/31/2013.

Ask a homework question - tutors are online