Page 776 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

Appendix F. Selected Accounting Interpretations 761

(2005). If a freestanding financial instrument was originally issued as employee compensation,
it will remain subject to FAS 123R throughout its life unless the terms are modified after the
individual is no longer an employee.
• FSP 123R-2, “Practical Accommodation to the Application of Grant Date as Defined in
FASB Statement 123(R)” (2005). Grant date, not the date of communication, is assumed to
mean grant date definition if award is unilateral and communication will occur within a short
period of approval.
• FSP 123R-3, “Transition Election Related to Accounting for the Tax Effects of
Share-Based Payment Awards” (2005). Relief is provided to companies having insufficient
information prior to adopting FAS 123 about the tax effects of awards.
• FSP 123R-4, “Classification of Options and Similar Instruments Issued as Employee
Compensation That Allow for Cash Settlement upon the Occurrence of a Contingent
Event” (2006). The mere presence of a cash contingent cash settlement feature does not mandate
reclassification as a liability award requiring variable market-to-market exercise date accounting.

Emerging Issues Task Force (EITF) Issues

• EITF 84-13, “Purchase of Stock Options and Stock Appreciation Rights in a Leveraged
Buyout.” Expensing of payments to acquire stock options and SARs is required.
• EITF 84-18, “Stock Option Pyramiding.” A holding period of at least six months is required
before tendering shares to exercise a stock option to avoid variable accounting.
• EITF 84-34, “Permanent Discount Restricted Stock Purchase Plan.” Company right
of first refusal to buy back shares at current market value less the amount of the discount is
probably a grant-date compensatory plan.
• EITF 85-1, “Classifying Notes Received for Capital Stock.” Notes received should
probably be a reduction in shareholder equity.
• EITF 85-11, “Use of an Employee Stock Ownership Plan in a Leveraged Buyout.”
Agreed with relevance of AICPA Statement of Position 76-3.
• EITF 85-45, “Business Combinations: Settlement of Stock Options and Awards.”
Acquired company must expense cost of options and awards if part of acquisition plan.
• EITF 86-27, “Measurement of Excess Contributions to a Defined Contribution Plan
or Employee Stock Ownership Plan.” Describes accounting treatment of the stock and its
dividends.
• EITF 87-6, “Adjustments Relating to Stock Compensation Plans.” This covers changes
to TRA 1986 stock options; tax-offset cash bonus plans; stock option shares used to meet
tax withholding requirements; and attestation of mature stock owned for stock-for-stock
exercises.
• EITF 87-23, “Book Value Stock Purchase Plans.” Describes treatment of the transaction
when employees sell their ESOP shares back to the company.
• EITF 87-33, “Stock Compensation Issues Related to Market Decline.” Describes fixed
and variable accounting treatment of stock options and stock awards that are modified or
canceled in exchange for new shares.
• EITF 88-6, “Book Value Stock Plans in an Initial Public Offering.” Describes when fixed
and variable plan accounting is required.
• EITF 88-23, “Lump Sum Payments under Union Contracts.” Describes when a portion of
the lump sum may be deferred and amortized.
• EITF 88-27, “Effect of Unallocated Shares in an Employee Stock Ownership Plan on
Accounting for Business Combinations.” Describes when unallocated ESOP shares are not
considered tainted for pooling-of-interests accounting.
• EITF 89-8, “Expense Recognition for Employee Stock Ownership Plans.” Describes
when shares-allocated method must be used.