ACCOUNTANTS’ HANDBOOK VOLUM phần 7 ppsx

The attribution period required by SFAS No. 106 differs slightly from that in SFAS No. 87. As discussed earlier, SFAS No. 87 requires an attribution that accrues the costs from hire date (or service start date) to the expected retirement date, following the accrual pattern specified by the plan formula. SFAS No. 106, in contrast, requires a ratable attribution from hire date (or service start date) to full eligibility date. The end of the attribution period differs for the two Statements. In many retiree medical plans, employees are eligible to retire with full benefits as early as age 55, assuming they have earned enough service. In this case, SFAS No. 106 would generally require the liability for active employees to be fully accrued by the time they attain age 55. If significant benefits accrue beyond the full eligibility date, as may be the case when additional service provides enhanced benefits, SFAS No. 106 would require an attribution period that is consistent with SFAS No. 87. Overall, SFAS No. 106 generally requires a more rapid accrual of the liability than SFAS No. 87. As noted above, many of the actuarial assumptions used to develop SFAS Nos. 87 and 106 liabilities and expense are similar. Relevant actuarial assumptions, including assumptions that are unique to SFAS No. 106, are discussed in greater detail later in this section. SFAS No. 132 governs the financial statement disclosure requirements for SFAS No. 87 and SFAS No. 106. The specific disclosure requirements, including a description of the differences for pension and retiree welfare plans, are included later in this section. Finally, unlike the pension rules under SFAS No. 87, SFAS No. 106 does not require a minimum balance sheet liability. (c) ACTUARIAL ASSUMPTIONS. Many of the actuarial assumptions necessary to develop the SFAS No. 106 expense and liabilities, such as discount rate, mortality, retirement age, and turnover, are similar to those used for SFAS Nos. 87 and 88. The discount rate for SFAS No. 106 purposes is established using the same discounted cash flow methodology described in Subsection 36.2(c)(iii). In practice, most employers will use the same assumptions for SFAS No. 87 and SFAS No. 106 to the extent the plans cover the same group of employees. However, the nature of the benefits covered by SFAS No. 106 requires the use of some unique actuarial assumptions. Perhaps the most significant of these assumptions is the assumed per capita claims cost. Unlike pension plans that provide monthly cash payments, retiree medical plans typically promise benefits in the form of medical services. Besides variations due to plan provisions that define the level or richness of benefits provided, claims experience varies significantly by age, sex, occupation, and ge- ographic location. This necessitates the development of an assumed set of per capita health care costs, usually stratified by age and gender. This per capita claims estimate should reflect the provisions of the plan and is typically based on historical claims experience of the employer. Since most plans are integrated with Medicare, assumptions must also be made for post-65 participants as to the portion of their benefits that will be provided by the government. Another assumption unique to SFAS No. 106 is the medical trend assumption. While some retiree medical plans cap benefits at current levels, the more common approach is to provide un- capped benefits that are subject to medical inflation. As noted above, medical inflation has out- paced standard inflation over the past 20 years. Currently, most health care experts expect this trend to continue in the near future. Therefore, the medical trend assumption for most employers reflects a relatively high initial medical trend that decreases each year until it reaches a flat, long-term level. Many employers use different medical trend rates for different benefits that are provided by the plan. In particular, prescription drug inflation has been higher than overall medical trend, and many employers reflect this discrepancy in their assumed trend rates. There are several other assumptions unique to SFAS No. 106. Since not all employees will elect to be covered by the retiree medical plan, an assumption about the participation level must be made. This is particularly important in plans where retirees must contribute toward the cost of coverage. If these costs become too high, many retirees will decline coverage and rely on Medicare or purchase their own medical coverage. In addition, many retiree medical plans have more than one coverage option, such as a health maintenance organization (HMO), preferred 36 • 42 PENSION PLANS AND OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS provider organization (PPO), and an indemnity plan. In such a case, an assumption must be made as to which plan a participant will elect when he retires. Actual experience and anticipated employer subsidies must be considered in setting this assumption. (d) NONRECURRING EVENTS. SFAS No. 88 addresses the special accounting that is required for settlements, curtailments, and special termination benefits related to pension plans. These events may also affect postretirement medical plans. While the treatment for pension and retiree medical plans is quite similar, SFAS No. 106 directly addresses the accounting for settlements and curtailments and the unique issues related to postretirement welfare benefit plans. The Statement defers to SFAS No. 88 for the accounting for special termination and contractual termination benefits. As discussed earlier, a settlement is an irrevocable commitment that releases the employer from primary responsibility for some or all of the liability. Settlements are fairly rare in postretirement medical plans due to the nature of the benefit promise. Unlike a pension plan that provides that a nonparticipating annuity contract can be purchased to settle the obligation, there are no viable financial instruments that can settle the promise of lifetime medical coverage. The one instance in which settlements can occur with postretirement medical plans is for companies that have instituted cost caps for their retirees and thereby transformed the liability into a fixed monthly annuity. The settlement accounting prescribed by SFAS No. 106 precisely follows SFAS No. 88. Curtailments occur when the expected years of future service for covered employees is significantly reduced or the future accrual of benefits is eliminated for future service. In general, curtailment accounting under SFAS No.106 follows the treatment under SFAS No. 88. How- ever, due to the some of the unique aspects of retiree medical benefits, curtailment accounting for these plans can be complex. For example, assume we have a company that sponsors a retiree medical plan that covers 100 current retirees ($2 million in APBO) and 500 active employees ($3.5 million in APBO). Fur- ther assume that the company chooses to eliminate these benefits for all active employees as of some fixed date. This plan change eliminates both past and future accruals. Since these benefits are not protected by minimum vesting requirements similar to those applicable to pension plans, this is a possible scenario. In fact, many companies have taken this approach as a reaction to es- calating retiree medical liabilities. Under this scenario, there is both a negative plan amendment and a curtailment. The negative plan amendment relates to the change in the APBO that is attributable to past service. Curtail- ment accounting, in contrast, is focused on any portion of the liability attributable to future service. For a retiree medical plan, all of the APBO is attributable to past service. If the plan included retiree life insurance that was based on final average pay, the portion of the APBO attributable to using projected salary increases would be a curtailment gain. For example, assume the life insurance liability is $200,000 based on covered participants current service and salary. However, SFAS No. 106 requires the APBO to be valued using current service and projected salary. Therefore, the total APBO might be $300,000. If this life insurance benefit were eliminated, $200,000 would be treated as a negative plan amendment and $100,000 as a curtailment gain. Since the typical retiree medical plan is not based on salary, the entire APBO is attributable to prior service. Therefore, the entire reduction in APBO is attributed to the negative plan amendment. There is no curtailment gain subject to immediate recognition. The only effect the curtailment might have is the accelerated recognition of existing unrecognized prior service costs or transition obligation. The negative prior service cost from the current plan change is not subject to accelerated recognition. Therefore, in many cases, the elimination of retiree medical benefits for active employees often results in a curtailment that has no immediate income statement effect. The $3.5 million reduction in APBO from the example must be amortized over the average remaining life expectancy of the 100 retirees. Question and Answer 28 from the SFAS No. 106 Implementation Guide addresses a similar scenario. 36.6 ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS 36 • 43 (e) DISCLOSURES. As amended by SFAS No. 132, disclosures under SFAS No. 106 are similar to disclosures under SFAS No. 87. Following are the differences: • Since there is no “additional minimum” required to be recognized under SFAS No. 106, the breakdown of the net amount recognized as a sum of intangible asset, additional minimum, and so on, is unnecessary. • One additional assumption must be disclosed: the medical trend assumption. Since the medical trend is assumed to vary over several years, it is acceptable to paraphrase. • Since the medical trend assumption has a large effect on the benefit obligation, a sensitivity analysis must be performed. This analysis shows the effect on service cost plus interest cost, and the benefit obligation, under a 1 percentage point increase and decrease in the trend assumptions. Exhibit 36.10 is a sample disclosure under SFAS No. 106 for a public entity. For a nonpublic reporting entity, the disclosures can be considerably shortened, similar to disclosures under SFAS No. 87. The only difference between the formats of disclosures under SFAS No. 87 for nonpublic entities versus SFAS No. 106 for nonpublic entities is that the medical trend rate assumption must be disclosed, using a paragraph similar to the one in Exhibit 36.10. 36.7 EMPLOYERS’ ACCOUNTING FOR POSTEMPLOYMENT BENEFITS (a) BACKGROUND. Issued by the FASB in November 1992, SFAS No. 112, “Employer’s Accounting for Postemployment Benefits,” established accounting standards for the estimated cost of benefits provided by an employer to former or inactive employees in the window of time after employment but before retirement (hereafter referred to as postemployment benefits). Postemployment benefits include such items as salary continuation, supplemental unemploy- ment benefits, disability-related benefits (including workers’ compensation), job training, and the continuation of health care benefits and life insurance coverage. Prior to the issuance of SFAS No. 112, the accounting for the cost of postemployment benefits varied from employer to employer. Although some employers accounted for these benefits under a form of accrual accounting (e.g., terminal accrual accounting—under which the cost of the benefit is accrued at the time the event giving rise to the payment of benefits occurs), most still used a cash basis to recognize the costs associated with such benefits. The Board concluded that generally accepted accounting principles required recognition of postemployment benefits on an accrual basis. The Board also concluded that two existing State- ments, SFAS No. 43, “Accounting for Compensated Absences,” and SFAS No. 5, “Accounting for Contingencies,” specified appropriate accounting for postemployment benefits. However, both these Statements specifically excluded postemployment benefits. Therefore, SFAS No. 112 amended SFAS No. 43 and SFAS No. 5 to include postemployment benefits. (b) SFAS NO. 112. As noted above, SFAS No. 112 requires employers to recognize the obligation to provide postemployment benefits under an accrual method of accounting. (i) Application (SFAS No. 43 versus SFAS No. 5). The method of accrual accounting required under SFAS No. 112 depends on whether the benefit is covered by SFAS No. 43 or SFAS No. 5. Specifically, postemployment benefits that meet each of the following four conditions should be accounted for in accordance with SFAS No. 43: 1. The employer’s obligation relating to employee’s rights to receive compensation for future absences is attributable to employee services already rendered. 2. The obligation relates to rights that vest or accumulate. 36 • 44 PENSION PLANS AND OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS 3. Payment of the compensation is probable. 4. The amount can be reasonably estimated. Postemployment benefits covered by SFAS No. 112 that do not meet these conditions should be accounted for in accordance with SFAS No. 5 so long as it is probable that an event causing the liability has occurred and the cost is reasonably estimable. 36.7 EMPLOYERS’ ACCOUNTING FOR POSTEMPLOYMENT BENEFITS 36 • 45 20X6 20X5 Change in benefit obligation Benefit obligation at beginning of year 1,825 2,000 Service cost 110 100 Interest cost 110 120 Actuarial loss 55 (45) Benefits paid (400) (350) Amendments 150 Benefit obligation at end of year 1,850 1,825 Change in plan assets Fair value of plan assets at beginning of year 0 0 Actual return on plan assets 0 0 Employer contributions 400 350 Benefits paid (400) (350) Fair value of plan assets at end of year 0 0 Funded status (1,850) (1,825) Unrecognized actuarial loss 175 120 Unrecognized prior service cost 360 240 Net amount recognized (1,315) (1,465) Weighted-average assumptions as of December 31 Discount rate 7.25% 7.50% For measurement purposes, a 12% annual rate of increase in the per capita cost of covered health care benefits was assumed for 20X7. The rate was assumed to decrease gradually to 5% for 20 (X + 1) 4 and remain at that level thereafter. Components of net periodic benefit cost Service cost 110 100 Interest cost 110 120 Expected return on plan assets 0 0 Amortization of prior service cost 30 35 Recognized actuarial loss 0 0 Net periodic benefit cost 250 255 Assumed health care cost trend rates significantly affect the amounts reported for health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects: 1- 1- Percentage- Percentage- Point Point Increase Decrease Effect on total of service and interest cost 12 (10) components Effect on postretirement benefit obligation 190 (175) Exhibit 36.10 Sample postretirement medical disclosures for a public entity. ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ In practice, the second item above is the most significant in determining whether SFAS No. 5 or SFAS No. 43 accrual accounting is applicable. Since most postemployment benefits do not vest, ac- cumulation is the key factor. In general, the term “accumulate” means that the benefit varies with an employee’s service. In other words, a benefit that increases as an employee renders additional service is said to accumulate. A benefit that is independent of an employee’s service does not meet this standard, and SFAS No. 5 treatment should be applied. An example of a plan that would require SFAS No. 43 accrual accounting is a disability plan that pays income continuation benefits for two weeks for each year of service an employee has rendered at the time of disability. This plan meets each of the four criteria described above. Con- versely, if the plan provided 10 weeks of income continuation regardless of seniority at the time of disability, SFAS No. 5 accounting would apply. As with all of the Statements described in this chapter, SFAS No. 112 need not be applied to im- material items. Unlike SFAS Nos. 87 and 106, postemployment benefits are much more likely to fall below the materiality threshold for many employers. This is due to the nature of postemployment benefit plans, which often pay relatively small benefits for short periods of time. (ii) Differences in Accrual Accounting. For postemployment benefits that are subject to SFAS No. 43, a liability and expense must be accrued for all participants covered by the benefit plan in question. This includes all active employees who are eligible for the benefit as well as participants who are currently in pay status. For active participants, that raises a question regarding attribution. Paragraphs 12 and 13 of SFAS No. 43 appear to be based on an assumption that accumulating postemployment benefits should accrue uniformly over all service. Looking to SFAS Nos. 87 and 106, as SFAS No. 112 suggests, SFAS No. 43 type benefits should accrue uniformly over all service unless the benefit accrual pattern is strongly front-loaded. In this case, the Statements suggest that the expense accrual pattern should follow the benefit accrual pattern. Therefore, a service-based approach following the pattern of benefit accruals should be applied for the attribution of benefits under SFAS No. 43. SFAS No. 5 requires a terminal accrual approach. Therefore, income is not charged until both of the following conditions are met: 1. Information available before the financial statements are issued indicates that it is probable that a liability has been incurred. 2. The amount of the liability can be reasonably estimated. The importance of the term “probable” in the conditions above is best illustrated with an example. With long-term disability plans, it is often several months between the date a disability occurs and the time at which benefit payments are approved. The time between when the claim is filed and when payment is approved is used to confirm that the disability meets all of the conditions necessary to trigger payment under the terms of the plan. If this adjudication period overlaps a fiscal year end, SFAS No. 5 requires that a liability be accrued for an employee if the employer believes it is probable that disability payments will be made to the employee in question. Therefore, the liability for such a plan is equal to the actuarial present value of future benefits for all participants currently in pay status plus the liability attributable to employees who have been injured but whose claims have not been fully adjudicated. Since not every disability claim results in payment, an assumption about the number of disability claims that will result in payment should be made. No liability is accrued for currently healthy active employees under SFAS No. 5. (iii) Measurement Issues. SFAS No. 112 does not specifically address how to measure an employer’s postemployment benefit obligation. However, the Board urged employers to utilize guid- 36 • 46 PENSION PLANS AND OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS ance provided in SFAS Nos. 87 and 106 on the measurement of postretirement benefit obligations. Since most postemployment benefits are structurally similar to pension and other postretirement benefits, employers have generally adopted the methodology and assumptions guidance provided in these two Statements. For plans subject to SFAS No. 43 accounting, the annual expense determination is similar to that in SFAS Nos. 87 and 106. The expense is made up of several familiar components: service cost, interest cost, amortization of prior service cost, and amortization of actuarial gains and losses. Paragraph 25 of SFAS No. 112 specifically disallowed delayed recognition of the transition obligation. Therefore, all employers were required to record the entire liability at adoption as the effect of a change in accounting principle. SFAS No. 112 and SFAS No. 43 provide little or no explicit guidance on delayed recognition of plan amendments and actuarial gains and losses. While a strict reading of SFAS No. 43 seems to preclude delayed recognition of any portion of the liability, in practice many employers have used the Board’s advice to rely on SFAS Nos. 87 and 106 to support delayed recognition of these two items. When amortization is used, the amortization period is expected future service until expected payment. This produces a fairly short amortization period, thereby reducing the discrepancy between immediate and delayed recognition. For plans covered by SFAS No. 5, the balance sheet liability is equal to the actuarially deter- mined value of the benefit obligation as of the financial statement date. Therefore, the income statement expense is equal to the amount to reconcile the prior and current year’s reserve, ad- justing for actual cash payments during the year. SFAS No. 112 provides no specific guidance on the use of discounting or other assumptions, other than indicating that discounting of postemployment benefit obligations is permitted but not required. SFAS Nos. 43 and 5 are also silent on this issue. As encouraged by paragraph 23 of SFAS No. 112, employers should look to SFAS Nos. 87 and 106 for guidance in selecting assumptions to the extent they are used. Therefore, employers have used actuarial assumptions such as discount rates, salary scale, mortality, and disability incidence in measuring the SFAS No. 112 liability. In general, these assumptions are the same as those used for measuring liabilities under SFAS Nos. 87 and 106. One exception is the discount rate for workers’ compensation, which is based on yields on risk-free securities. Employers have therefore looked to Treasury security yields instead of high-quality corporate debt in setting the discount rate for these purposes. (iv) Disclosures. SFAS No. 112 does not include any stringent disclosure requirements. In fact, the Statement requires disclosure only if the obligation for a postemployment benefit plan is not reflected in the financial statements because the amount cannot be reasonably estimated. This may be the case for a postemployment benefit that is triggered by an event that is difficult to predict with any degree of accuracy. Therefore, in practice, employers have not provided detailed financial statement notes like those required under SFAS No. 132 for pension (SFAS No. 87) and other postretirement benefits (SFAS No. 106). (v) Illustration. The following is an illustration of the key actuarial results for a typical SFAS No. 112 liability. The plan in question is a long-term disability plan that provides income and medical continuation benefits. The amount of benefit is based on a schedule that takes an employee’s service at time of disability into account. Since the benefits “accumulate,” the plan is subject to the requirements of SFAS No. 43, and therefore, the reporting on it must reflect a liability for both active and disabled participants. The reconciliation of funded status is reflected in a manner similar to that for SFAS No. 87 and SFAS No. 106 to show the similarities between SFAS No. 112 and these two Statements. However, SFAS No. 112 does not include financial statement note disclosure for this type of plan, so this level of detail need not be presented (see Exhibit 36.11). 36.7 EMPLOYERS’ ACCOUNTING FOR POSTEMPLOYMENT BENEFITS 36 • 47 36.8 SOURCES AND SUGGESTED REFERENCES American Academy of Actuaries, “An Actuary’s Guide to Compliance with Statement of Financial Accounting Standards No. 87.” AAA, Washington, DC, 1986. ______, “Actuarial Compliance Guideline for Statement of Financial Accounting Standards No. 88.” Actuarial Standards Board, Washington, DC, 1989. Accounting Principles Board, “Accounting for the Cost of Pension Plans,” APB Opinion No. 8. AICPA, New York, 1966. ______, “Accounting Changes,” APB Opinion No. 20. AICPA, New York, 1971. ______, “Reporting the Results of Operation—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions,” APB Opinion No. 30. AICPA, New York, 1973. Accounting Standards Executive Committee, “Accounting for and Reporting of Postretirement Medical Benefit (401(h)) Features of Defined Benefit Pension Plans,” Statement of Position 99-2. AICPA, New York, 1999. Financial Accounting Standards Board, “A Guide to Implementation of Statement 87 on Employers’Accounting for Pensions: Questions and Answers.” FASB, Stamford, CT, 1986. ______, “A Guide to Implementation of Statement 88: Questions and Answers.” FASB, Norwalk, CT, 1988. 36 • 48 PENSION PLANS AND OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS Reconciliation of Funded Status 1. Actuarial Liability a. Disabled Participants ($12,000,000) b. Active Participants ($20,000,000) c. Total ($32,000,000) 2. Fair Value of Assets $0 3. Funded Status ($32,000,000) 4. Unrecognized Amount at Transition* $0 5. Unrecognized Net Loss/(Gain) $6,000,000 6. Unrecognized Prior Service Cost $0 7. (Accrued)/Prepaid Postemployment Benefit Cost at Year End ($26,000,000) *SFAS No. 112 did not allow delayed recognition of the transition obligation. Change in (Accrued)/Prepaid Postemployment Benefit Cost 1. (Accrued)/Prepaid Postemployment Benefit Cost at Prior Year End ($24,400,000) 2. Expense During Year* a. Service Cost $2,200,000 b. Interest Cost $2,800,000 c. Amortization of Loss/(Gain) $600,000 d. Total Expense $5,600,000 3. Payouts During Year** $4,000,000 4. (Accrued)/Prepaid Postemployment Benefit Cost at Current Year End ($26,000,000) *Since SFAS No. 43 applies to this plan, the annual expense is explicitly calculated as the sum of the service cost, interest cost, and amortization of unrecognized actuarial losses. Were this a SFAS No. 5 plan, the annual expense would equal the change in the actuarial reserve, adjusted for benefit payments made during the year. ** Since the plan is unfunded, benefit payments are treated as employer contributions. Exhibit 36.11 Illustration of SFAS No. 112 accounting. ______, “Accounting and Reporting by Defined Benefit Pension Plans,” Statement of Financial Accounting Stan- dards No. 35. FASB, Stamford, CT, 1980. ______, “Employers’ Accounting for Pensions,” Statement of Financial Accounting Standards No. 87. FASB, Stamford, CT, 1985. ______, “Employers’ Accounting for Settlements and Curtailments of Deferred Benefit Pension Plans and for Termination Benefits,” Statement of Financial Accounting Standards No. 88. FASB, Stamford, CT, 1985. ______, “Employers’ Accounting for Postretirement Benefits Other than Pension,” Statement of Financial Ac- counting Standards No. 106. FASB, Norwalk, CT, 1990. ______, “Accounting for Income Taxes,” Statement of Financial Accounting Standards No. 109. FASB, Nor- walk, CT, 1992. ______, “Reporting by Defined Benefit Pension Plans of Investment Contracts,” Statement of Financial Ac- counting Standards No. 110. FASB, Norwalk, CT, 1992. ______, “Employers’ Accounting for Postemployment Benefits,” Statement of Financial Accounting Standards No. 112. FASB, Norwalk, CT, 1992. ______, “Reporting Comprehensive Income,” Statement of Financial Accounting Standards No. 130. FASB, Norwalk, CT, 1997. ______, “Employers’ Disclosures about Pensions and Other Postretirement Benefits,” Statement of Financial Ac- counting Standards No. 132. FASB, Norwalk, CT, 1998. ______, “Business Combinations,” Statement of Financial Accounting Standards No. 141. FASB, Norwalk, CT, 2001. Lorenson, Leonard, and Rosenfield, Paul, “Vested Benefits—A Company’s Only Pension Liability,” Journal of Accountancy, October 1983. Munnell, Alicia H., Economics of Private Pensions. The Brookings Institution, Washington, DC, 1982. 36.8 SOURCES AND SUGGESTED REFERENCES 36 • 49 [...]... Date and Transition 27 28 28 28 28 28 28 28 28 29 31 31 37 38 38 38 39 39 40 42 43 44 44 44 45 46 47 48 48 49 50 51 51 52 54 54 31 31 31 31 32 32 32 37 37 37 37. 7 EARNINGS PER SHARE UNDER FASB STATEMENT NO 123 37. 8 FINANCIAL STATEMENT DISCLOSURES (a) Disclosure Requirements for All Companies (b) Disclosures by Companies That Continue to Apply the Provisions of APB Opinion No 25 37. 9 SOURCES AND SUGGESTED... The Wall Street Journal August 10, 1998, p B.5 37. 1 HISTORY OF ACCOUNTING FOR STOCK-BASED COMPENSATION 37 5 • FASB AND EITF PRONOUNCEMENTS SINCE 1 978 Year Issued By Title 1982 FASB 1984 FASB 1984 EITF 1984 1984 1985 EITF EITF EITF 19 87 19 87 19 87 1988 1990 1990 EITF EITF EITF EITF EITF EITF 1994 EITF 1995 EITF 1995 19 97 FASB EITF 19 97 EITF 19 97 EITF 19 97 FASB 1999 EITF 2000 EITF 2000 EITF 2000 FASB 2000... SUGGESTED REFERENCES 54 57 57 57 58 37. 1 HISTORY OF ACCOUNTING FOR STOCK-BASED COMPENSATION The nature and types of stock-based compensation plans and awards have constantly changed over the years However, the two most significant problems in determining the appropriate accounting for such awards have remained the same: 37. 1 HISTORY OF ACCOUNTING FOR STOCK-BASED COMPENSATION 37 3 • 1 Measurement of compensation... and under U.S Internal Revenue Service Revenue Ruling 87- 14 For such a person to be a common law employee, the grantor must represent the person as an employee for payroll tax purposes How- 4 Dennis R Beresford, “How to Succeed as a Standard Setter by Trying Really Hard,” Accounting Horizons, September 19 97, p 83 37. 2 SCOPE OF APB OPINION NO 25 37 7 • ever, simply representing a person as an employee... Combinations: Settlement of Stock Options and Awards” EITF Issue No 87- 6: “Adjustments Relating to Stock Compensation Plans” EITF Issue No 87- 23: “Book Value Stock Purchase Plans” EITF Issue No 87- 33: “Stock Compensation Issues Related to Market Decline” EITF Issue No 88-6: “Book Value Stock Plans in an Initial Public Offering” EITF Issue No 90 -7: “Accounting for a Reload Stock Option” EITF Issue No 90-9:... manner similar to a stock split or stock dividend 37. 4 EARNINGS PER SHARE UNDER APB OPINION NO 25 Computation of the effect of stock-based compensation awards on earnings per share is addressed in FASB Statement No 128, “Earnings Per Share.” FASB Statement No 128, issued by the FASB in 37. 4 EARNINGS PER SHARE UNDER APB OPINION NO 25 37 25 • February 19 97, superseded APB Opinion No 15, “Earnings Per Share,”... Acquiring, or in Conjunction with Selling, Goods or Services” EITF Issue No 97- 12, “Accounting for the Delayed Receipt of Option Shares upon Exercise under APB Opinion No 25” EITF Issue No 97- 12, “Accounting for Increased Share Authorizations in an IRS Section 423 Employee Stock Purchase Plan Under APB Opinion No 25” FASB Technical Bulletin 97- 1, “Accounting under Statement 123 for Certain Employee Stock Purchase... to an employee through a compensation plan is “cash paid to an employee to settle an earlier award of stock or to settle a grant of option” if stock is reacquired shortly after is- 37. 3 APPLICATION OF APB OPINION NO 25 37 17 • suance Cash proceeds that a corporation receives from sale of awarded stock or stock issued on exercise of an option and remits to the taxing authorities to cover required withholding... for these types of awards 37. 3 APPLICATION OF APB OPINION NO 25 37 19 • In EITF Issue No 88-6, the Task Force reached a consensus that a book value stock purchase plan of a publicly held company should be viewed as a performance plan and should be accounted for like an SAR (this is consistent with the SEC observer’s comment noted under the discussion of EITF Issue No 87- 23 above) Thus, for a publicly... in Exhibit 37. 2 EITF Issue No 88-6 also contains certain guidance regarding pro forma disclosures for these types of plans in the event of an IPO, as well as an exhibit that contains “Examples of the Application of APB Opinion No 25 and the EITF Consensus from Issue Nos 87- 23 and 88-6 in an IPO.” EITF Issue No 94-6, “Accounting for the Buyout of Compensatory Stock Options.” EITF Issue No 87- 33 addressed . Awards” 19 87 EITF EITF Issue No. 87- 6: “Adjustments Relating to Stock Compensation Plans” 19 87 EITF EITF Issue No. 87- 23: “Book Value Stock Purchase Plans” 19 87 EITF EITF Issue No. 87- 33: “Stock. Date and Transition 54 37. 7 EARNINGS PER SHARE UNDER FASB STATEMENT NO. 123 54 37. 8 FINANCIAL STATEMENT DISCLOSURES 57 (a) Disclosure Requirements for All Companies 57 (b) Disclosures by Companies That. 32 (d) Book Value or Formula Award 37 (i) Definition 37 (ii) Accounting by Employer for Compensation Expense 37 (iii) Accounting by Employer for Federal Income Taxes 37 (iv) Accounting by Employer for