Written for readers without an accounting background, this article provides a summary of the treatment of stock compensation under US GAAP. Also includes highlights of differences between the US GAAP and IFRS with respect to stock compensation.
This GRIST was revised to provide further explanation of the old APB 25 and FAS 123 "grant date" definition and the changes in FAS 123(R) in the Grant date definition and Existing practice and new interpretation sections
Companies must be careful that their clawback policies do not subject their equity grants to variable accounting treatment. This memo from Towers Watson explains what the concern is.
A common feature of incentive plans, negative discretion provisions let compensation
committees use subjective criteria to reduce otherwise objectively determined awards, without
violating the performance pay exception to the Code section 162(m) limit on deductible
compensation. These provisions might, however, create unwelcome accounting results if used in
performance-based equity plans. According to some accounting firms, the possibility that a
compensation committee will exercise negative discretion suggests that the FAS 123(R) grant
date does not occur until the committee decides whether to use its discretion – so variable
accounting applies until that time. After introducing the key concepts, this article analyzes the
accounting issues and outlines steps companies may wish to take to avoid adverse accounting.
Post a Question
Find an Expert