Fair value is established as the measurement

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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 3. Table 2: The most important similarities of SFAS 123 and ED 2 Similarities Equity Instruments Measurement Objective Measurement Date for SFAS 123 and ED 2 Equity instruments, including stock options granted to employees, are valuable. Fair value is established as the measurement objective for goods or services received. It is required that the fair value of equity instruments granted to employees is measured at the grant date. 41 Transactions with Employees 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 Differences Issuance and 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.) Measurement The standards recommend different dates to measure the fair value of Date for equity instruments granted for transactions with non-employees when the Transactions fair value of the equity instruments issued is more reliably measurable with N o n - than the value of the goods or services received. employees Attribution 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. Income Tax Excess tax (tax benefits in excess of All t ax b enefits s hould b e Benefits those a ssociated w ith r ecognised recognised i n t he i ncome cumulative compensation expense) statement. should be recognised as additional paid-in capital. Employee Stock ESOPs are excluded from SFAS 123 ESOPs are included in the ED 2. Ownership Plans and are accounted for according to (ESOPs) American Institute of Certified Public Accountants Statement of Position 93-6 “ Employers’ A ccounting f or Stock Ownership Plans”. Non-public It is permitted for non-public entities It is required that both public Entities 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 123 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) • BankAme...
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This document was uploaded on 10/31/2013.

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