Page 773 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

Appendix F

Selected Accounting

Interpretations

T hese interpretations are intended to be illustrative rather than the basis for forming
definitive accounting positions. Such matters should be taken up with the appropriate
professionals.

American Institute for Certified Public Accountants (AICPA):
1939–1959

• Bulletin No. 43, “Compensation Involved in Stock Options and Stock Purchase Plans”
(1951). Following the newly authorized restricted stock options under the 1950 Revenue Act,
this action made it an exception to the basic rule that the company must expense the full value
of a compensation item, be it cash or stock, over the performance period.

Accounting Principles Board (APB): 1959–1973
• APB 12, “Deferred Compensation Contracts” (1967). Accrual of non-ERISA plans requires
amortization of prior service costs following the terms of the plan.
• APB 15, “Earnings per Share” (1969). Described three types of earnings per share (EPS):
primary (including outstanding stock options and other stock-based awards), simple (no stock
awards included), and fully diluted (included forms of convertible securities). Stock-based
awards and other convertible securities had to exceed a 3% materiality threshold before the
dilution had to be included.
• APB 16, “Conditions of Pooling of Interest Methods of Accounting for Combination”
(1970). If the acquisition is deemed a purchase, then goodwill will be charged with the amount
paid in excess of the net asset fair market value. If the acquisition meets the rules for pooling,
then the historical cost basis is retained and the financials of the companies merged. Unless
otherwise detailed, acquisitions are considered to be purchases.

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