Disclosure bio continues to support improved

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Unformatted text preview: in SFAS 123 there is limited quality guidance for determining the volatility assumption and no consideration of adjustments in value for companies with thinly traded stocks. Adjustments need to be allowed for these factors to provide for a more accurate determination of fair value. Also, employee stock options are non-transferrable and subject to forfeiture, which reduces value. These factors are not considered in existing models, leading to an overstatement of value. In addition, BIO believes the standard should permit the use of new, appropriate option-pricing models as they are introduced. Issuance, Forfeitures, and Attribution Methods BIO sees merit to the approach in providing estimates for forfeitures at the date of grant that eliminate large adjustments that can occur under existing U.S. 70 Standards, since such an approach could result in overstating compensation expense for companies that are not mature and that have large unanticipated reductions in force. BIO believes that the existing attribution method in SFAS 123 is the most appropriate and representationally faithful of the economics of stock-based compensation arrangements. BIO stated that the "unit-of-service" concept in the proposed IASB rule is overly complex, will prove difficult to track, and will not yield estimates that are more accurate than the straight-line or graded vested methods under SFAS123. Disclosure BIO continues to support improved disclosures that are meaningful to shareholders and users of the financial statements. The current concern is that the stock option disclosure could become too lengthy and complex for shareholders and other users of financial statements. So BIO supports the IASB's s uggestion t o p rovide a dditional d isclosure s urrounding k ey assumptions (volatility and vesting conditions). 4.4.3 T he C ommittee o n C orporate R eporting o f F inancial E xecutives International and the Financial Reporting Committee of the Institute of Management Accountants The Committee on Corporate Reporting of Financial Executives International and the Financial Reporting Committee of the Institute of Management Accountants (the Committees) expressed their opinions on Invitation to Comment “Accounting for Stock-Based Compensation: A Comparison of FASB Statement No.123, Accounting for Stock-Based Compensation and Its Related Interpretations, and IASB Proposed IFRS Share-Based Payment” (www.fei.org/download/FEI_IMA_FAS123.pdf). The Committees expressed their views on the following issues: Issuance, Forfeitures, and Attribution Methods The Committees agree with the FASB’s conclusion that an equity instrument is issued only when valuable consideration has been exchanged. The existence of vesting restrictions and the potential for forfeiture differentiate employee stock options from virtually any other equity instrument and support the view expressed in SFAS 123. The Committees, therefore, do not agree with the units of service model proposed in the IASB ED. In Committees' opinion, the underlying conceptual basis for the IASB attribution model is inconsistent: it is not meaningful to recognize an expense for options that never vest, as the IASB 71 requires. The Committees are also concerned about the possibility that expenses recognized under the units of service approach can actually exceed the fair value of options granted. These outcomes stretch the credibility of the overall model. The Committees believe that the principles underlying the IASB model should only be adopted if they are demonstrably better than SFAS 123. Option Pricing Models/Valuation of Employee Stock Options The Committees state that there is universal agreement among members of both Committees that standard option-pricing models significantly overstate the value of employee stock options and that adjustments are necessary to reflect the differences between traded options and employee stock options. There also is strong agreement that the adjustments provided for in SFAS 123 do not adequately reflect those differences. Furthermore, there has been little progress in the development of a robust valuation model for employee stock options following the issuance of SFAS 123 that would provide a reasonable basis for a prescriptive approach to measurement. The Committees note that most accounting standards provide only summary level guidance regarding fair value measurement. Given that no robust valuation theory exists for determining the fair value of employee stock options, the Committees believe that it would be inappropriate to provide highly prescriptive guidance in this area. If expense recognition is ultimately required for employee stock options in financial statements, the requirement should stop at the principles level by indicating that measurement should be at fair value. FASB and IASB should not mandate the use of a particular option pricing model and companies should be permitted to use professional judgment in deriving their best estimate of each of the relevant variables consistent with the...
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This document was uploaded on 10/31/2013.

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