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February 1, 2006 --
The FASB published FASB Statement No. 123 (revised
2004) (“FAS 123(R)”), Share-Based Payment, which
requires that the compensation cost relating to stock
options, stock appreciation rights, restricted stock or
units, employee stock purchase plans and other share-based
payment transactions, measured based on the fair value, be
recognized in financial statements. FAS 123(R) replaces FAS
123, Accounting for Stock-Based Compensation, and supersedes
Accounting Principles Board No. 25 (“APB 25”),
Accounting for Stock Issued to Employees.
Under APB 25, employers compensation expense related to
share based awards to employees were based on the intrinsic
method (fair value of the award less exercise price of the
award). Under
the intrinsic method, no compensation expense was recorded
for share based awards with an exercise price greater than
or equal to the fair value of the award at the grant date.
Under the guidance of FAS 123(R), the fair value of
all share based awards must be calculated using an
acceptable valuation model such as the Black-Scholes-Merton
formula or binomial (lattice) model. The resulting
calculated fair value of the share based awards is expensed
in the Company’s income statement over the vesting or
service period. The
FASB believes the accounting for stock based awards under
FAS 123(R) more faithfully represents the economic reality
of share based payment transactions and increases the
transparency and clarity of a Company’s financial
statements.
As a result of FAS 123(R), the issuance of stock options to
employees may be less attractive since there will be a
negative impact on the employer’s bottom line.
Effective
Dates
Larger Public Companies -
Public companies that are not small business issuers must
apply FAS 123(R) as of the first interim or annual reporting
period that begins after
June 15, 2005
.
Small Business Issuers -
Small business issuers must apply FAS 123(R) in the first
interim or annual reporting period that begins after
December 15, 2005
.
Private Companies - Private
companies must apply FAS 123(R) in the first annual
reporting period after
December 15, 2005
.
For
additional information regarding FASB Statement No. 123(R),
visit FASB:
Summary of Statement 123 (revised 2004)
For
more information, contact your Asher accounting and auditing
professional at 215-564-1900.
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