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Unformatted text preview: Based Payments, which
preceded ED 2. We would like to note that some of the issues, such as whether
measurement date should be vesting date or grant date and some other issues,
are not discussed in ED 2. However, we chose to consider the views of
companies on these issues on order to evaluate whether respondents’ opinion
did in fact influence the standard setters when issuing ED 2.
61 From 311 Comment Letters submitted on the Discussion Paper by companies
and organizations, we have selected the Comment Letters of six companies and
four organizations. Dates of letters are given in parentheses.
• Ericsson (2001)
The Swedish Institute of Authorised Public Accountants (FAR) (2000)
Merrill Lynch (2000)
The Shell Petroleum Company (2000)
Association of German Banks (2001)
Barclays Bank (2000)
British Bankers’ Association (2000)
European Commission (2001) Where possible we selected the companies operating in the same industries as
those, whose Comment Letters we reviewed on Exposure Draft SFAS 123 and
Respondent descriptions are provided so the reader is made aware of the nature
of their business, unless previously provided.
Ericsson is one of the world’s largest suppliers of the mobile systems. It
provides total solutions covering everything from systems and applications to
services and core technology for mobile handsets (www.ericsson.com).
In its Comment Letter, Ericsson 1 states that the issue of share-based payments
has a low priority for the company as long as U.S. GAAP rules only require
disclosure of share-based compensation expense. Ericsson is reporting under
Swedish GAAP and, since the company is also listed on NASDAQ, it makes
the reconciliation to U.S. GAAP. Nevertheless, the company strongly
recommends IASB “…not to go beyond the U.S. GAAP treatment.”
The company agrees that where an observable price for stock options does not
exist, an option pricing model should be used in order to estimate the fair value
of stock option. It also adds that disclosure should be provided about the
assumptions used when applying the option pricing model. It is especially
relevant to the non-transferability feature of employee stock options. 62 The Discussion Paper proposes an alternative to use vesting date, service date
or grant date to measure the fair value of options granted. Ericsson believes that
grant date is an appropriate measurement date.
4.3.2 The Swedish Institute of Authorized Public Accountants (FAR)
FAR is the professional institute of authorised public accountants, approved
public accountants and other professionals in the accountancy sector in
Sweden. The Institute has a leading role in the development of the professional
standards, education and information for accounting and auditing professionals
in Sweden (www.far.se).
FAR generally agrees that there is an urgent need for similar accounting
standards around the world for stock-based compensation expense recognition,
as presently existing different treatment hinders the comparability of reported
In FAR's opinion, the issuing of stock options should be recognized in financial
statements and result in a charge to the income statement. The fair value of the
options granted is the proper measurement basis, but only if the fair value can
be reliably estimated.
FAR believes that option pricing models should be applied when estimating the
fair value of options granted. The assumptions used in option pricing models
can be adjusted. Nevertheless, detailed disclosure should be provided with
regard to the adjustments made. FAR emphasizes that one of the most
important choices made when applying option pricing model is that of taking
either contracted or expected life of the option into account. FAR considers that
the contracted life should be used. Otherwise, the reasons for not using it
should be disclosed.
In FAR’s opinion, the grant date is the most proper date for measuring the
value of stock-based compensation expense. If there are more or less of vesting
options than originally expected, the transaction amount should further be
adjusted over the vesting period.
4.3.3 Merrill Lynch & Co., Inc.
Merrill Lynch & Co., Inc (Merrill Lynch) expresses its disappointment with
IASB reviving the controversial issue of stock-based compensation expense
when, in its opinion, the issue has already been debated and resolved in the
United States. It emphasizes that the requirement of assigning a value to stock
options and charging the expense to earnings would severely damage both
63 established and emerging companies in industries that rely heavily on stock
awards to reward their employees.
Merrill Lynch believes that a successful compromise was reached in the United
States by issuing SFAS 123. The necessary level of transparency was achieved
via disclosure requirements. The pro forma effects of using the fair value based
method of measuring stock-based compensation expense provide, in Merrill
Lynch’s opinion, sufficient information to analysts and investors. Therefore, it
suggests that the existing methods allowed by SFAS 123 should be reflected in
In case IASB continues with i...
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This document was uploaded on 10/31/2013.
- Fall '13