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...

Majority of House of Representatives urges leadership to preserve cash method of accounting for tax purposesA bipartisan majority of the House of Representatives – 233 members – has signed a letter urging House...
Munger defends Buffett’s dealCharles Munger defended recent decisions by his business partner, Berkshire Hathaway Inc. Chairman Warren Buffett, and predicted that Berkshire would grow robustly, Jason Zweig of the Wall...
Tax friendly trusts swell under new rulesUS companies are latching onto an obscure real estate provision to avoid corporate taxes, widely adopting a financial maneuver that has been expanded under the Obama administration,...

Already a member? log in here.

Upcoming CPE Webinars

Sep 18
In this course, Amber Setter will shine the light on different types of leadership behavior- an integral part of everyone's career.
Sep 24
In this jam-packed presentation Excel expert David Ringstrom, CPA will give you a crash-course in creating spreadsheet-based dashboards. A dashboard condenses large amounts of data into a compact space, yet enables the end user to easily drill down into details when warranted.
Sep 30
This webcast will include discussions of important issues in SSARS No. 19 and the current status of proposed changes by the Accounting and Review Services Committee in these statements.
Oct 23
Amber Setter will show the value of leadership assessments as tools for individual and organizational leadership development initiatives.