Accounting for Share-Based Payments
This Financial Reporting letter was prepared and distributed by BDO USA, LLP to help our clients anticipate and respond to questions that may arise in connection with the implementation of FASB Statement No. 123 (Revised 2004), Share-Based Payment.
On December 16, 2004, the Financial Accounting Standards Board (FASB) issued its long awaited (for some, long-dreaded) requirement to record compensation expense for employee stock options in the form of FASB Statement No. 123 (revised 2004) (Statement 123(R)), Share-Based Payment. Most public companies will apply the new accounting in fiscal years beginning after June 15, 2005. Small public companies (S-B filers) and private companies will apply the new accounting in fiscal years beginning after December 15, 2005. The new requirements apply solely to financial statements prepared in accordance with generally accepted accounting principles; the Federal income tax treatment of employee stock options is unaffected.
Key Provisions of Statement 123(R)
- Statement 123(R) was issued December 2004 and effective in fiscal years beginning after 6/15/2005 for public companies (other than S-B filers); fiscal years beginning after 12/15/2005 for S-B filers and private companies.
- Requires recognition of compensation expense based on fair value of award
- Narrows rules for noncompensatory plans.
- Requires liability classification for certain types of awards.
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