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Unformatted text preview: arities of and differences between SFAS 123
and E D 2 a re p resented w ith r espect t o a ccounting f or s tock-based
compensation using the fair value based method. These similarities and
differences a re c lassified i n f ive m ain c ategories: s cope, r ecognition,
measurement, disclosure, and transition.
The most important similarities are compiled in Table 2 and the differences in
Table 2: The most important similarities of SFAS 123 and ED 2
Date for SFAS 123 and ED 2
Equity instruments, including stock options granted to employees, are
Fair value is established as the measurement objective for goods or
It is required that the fair value of equity instruments granted to
employees is measured at the grant date. 41 Transactions
Attribution It is required that compensation in the form of equity instruments granted
to employees is recognised in the income statement over the period in
which the employees provide services to earn the related benefits. Table 3: The most important differences between SFAS 123 and ED 2
Forfeitures SFAS 123
Equity instruments are issued only
when valuable consideration has been
exchanged. The concept of issuance is
directly l inked t o i ts m ethod o f
accounting f or f orfeitures. ( For
example, S FAS 1 23 r everses
cumulative compensation expense for
equity instruments that are forfeited.) ED 2
Issuance of equity instruments
has no effect on its conclusions,
regardless of how it is defined.
The m ethod o f t reating
forfeitures is based on a totally
different rationale comparing
with SFAS 123. (For example,
ED 2 d oes n ot r everse
cumulative expense for equity
instruments that are forfeited.)
The standards recommend different dates to measure the fair value of
equity instruments granted for transactions with non-employees when the
fair value of the equity instruments issued is more reliably measurable
N o n - than the value of the goods or services received.
Different methods are used to attribute compensation to expense over the
period in which benefits are earned. This influences a difference in the
total amount of cumulative compensation expense being recognised over
the life of the award and also a different expense recognition patterns
over the life of award.
Excess tax (tax benefits in excess of All t ax b enefits s hould b e
those a ssociated w ith r ecognised recognised i n t he i ncome
cumulative compensation expense) statement.
should be recognised as additional
Employee Stock ESOPs are excluded from SFAS 123 ESOPs are included in the ED 2.
Ownership Plans and are accounted for according to
American Institute of Certified Public
Accountants Statement of Position
93-6 “ Employers’ A ccounting f or
Stock Ownership Plans”.
It is permitted for non-public entities It is required that both public
to measure equity instruments granted and non-public entities measure
at minimum value for transaction equity instruments at fair value
with e mployees, n o t t aking i nto for transactions with employees.
account e xpected s tock p rice
volatility. 42 The Invitation to Comment summarises the primary and secondary similarities
and differences, but it does not list all similarities and differences between
SFAS 123 and ED 2. The idea of issuing the Invitation to Comment was to
encourage an analysis of the ED 2 in order to promote international
convergence of high-quality accounting standards. 43 44 4 Empirical Findings
In this chapter we present the empirical evidence collected in the course of our
work. We review a number of Comment Letters submitted by various
companies and professional organizations on FASB SFAS 123 "Accounting for
Stock-Based Compensation", FASB SFAS 148 "Accounting for Stock-Based
Compensation - Transition and Disclosure", and IASB Discussion Paper on
Share-Based Payments (Discussion Paper). Further, we look into how
companies account for stock-based compensation expense in their financial
statements. 4.1 Review of Comment Letters Submitted to the ED for SFAS
From more than 700 Comment Letters submitted on the Exposure Draft SFAS
123 (www.fei.org/advocacy/download/StockOptions-whitepaper.pdf), we have
selected the Comment Letters from ten large and well-known representatives of
their industries – manufacturers, auditors, analysts and high-tech companies.
Dates of letters are given in parentheses.
• Arthur Andersen & Co., Coopers & Lybrand, Deloitte & Touche, Ernst
& Young, KPMG Peat Marwick, Price Waterhouse (1994)
• The Boston Security Analysts Society (1993)
• The Coca-Cola Company (1993)
• The Chase Manhattan Corporation (1994)
• Merrill Lynch & Co., Inc (1993)
• Oracle System Corporation (1994)
• LTV Steel (1993)
• Intel Corporation (1994)
• JP Morgan (1994)
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This document was uploaded on 10/31/2013.
- Fall '13