SEC's Chief Accountants Statement on FASB's Action

On Thursday, the Financial Accounting Standards Board (FASB) issued its Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (Statement 123R), which addresses the accounting for employee stock options. The Commission's Chief Accountant, Donald T. Nicolaisen, issued the following comments on Statement 123R:

The issuance of Statement 123R represents another important improvement in US generally accepted accounting principles. It will result in more comparable information in financial statements provided to investors.

Statement 123R requires that the cost of all employee stock options, as well as other equity-based compensation arrangements, be reflected in the financial statements based on the estimated fair value of the awards. Thus, it will provide complete information and will make it easier for investors to compare financial results among entities regardless of whether they use fixed or variable stock options or other forms of employee compensation. Stock options are a valuable and important tool that have been used by many companies as a means to motivate employees and to promote business growth. Statement 123R requires that the value of these arrangements be measured and recognized in the financial statements. The issuance of Statement 123R represents the culmination of years of work by the FASB. The debate has been open, rigorous and appropriate. I appreciate the hard work and dedication of the FASB and of the thousands of investors, analysts, registrants, employees and others who have shared their views on this important issue.

Now that Statement 123R has been issued, companies should focus on implementation, and I encourage early adoption by those companies who are able to and who choose to do so. I recognize that this accounting standard requires the use of assumptions and estimates about future events, and some of the inputs to valuation models require considerable judgment. Accordingly, in applying the standard, it is important that preparers, auditors and those assisting in valuing equity-based awards use their best judgment. I anticipate that assumptions and estimates of fair value related to employee stock options will improve as companies gain more experience. I also anticipate that for many companies their best estimates under the new standard will differ from those previously used in footnote disclosures. The SEC staff will evaluate implementation of the new standard and is preparing to provide appropriate guidance to assist preparers of financial statements.

You may like these other stories...

IRS audits less than 1 percent of big partnershipsAccording to an April 17 report from the Government Accountability Office (GAO), the IRS audits fewer than 1 percent of large business partnerships, Stephen Ohlemacher of the...
Is it time to consider a value added tax?Forbes contributor Joseph Thorndike wrote yesterday that he believes the tax reform proposal by House Ways and Means Committee Chairman Dave Camp (R-MI) was dead on arrival. But he...
Read more from Larry Perry here and in the Today's World of Audits archive.The planning phase of an audit engagement of an entity using US GAAP or a special purpose framework will, with minor differences, include similar...

Upcoming CPE Webinars

Apr 22
Is everyone at your organization meeting your client service expectations? Let client service expert, Kristen Rampe, CPA help you establish a reputation of top-tier service in every facet of your firm during this one hour webinar.
Apr 24
In this session Excel expert David Ringstrom, CPA introduces you to a powerful but underutilized macro feature in Excel.
Apr 25
This material focuses on the principles of accounting for non-profit organizations' revenues. It will include discussions of revenue recognition for cash and non-cash contributions as well as other revenues commonly received by non-profit organizations.
Apr 30
During the second session of a four-part series on Individual Leadership, the focus will be on time management- a critical success factor for effective leadership. Each person has 24 hours of time to spend each day; the key is making wise investments and knowing what investments yield the greatest return.