Accounting for Stock-Based Compensation (SFAS 123R)

This revised statement from the Financial Accounting Standards Board (FASB) establishes standards for stock-based employee compensation plans, such as stock purchase plans, stock options, restricted stocks, and stock appreciation rights.

SFAS 123R encourages all entities to use fair value as the method of accounting for all of their employee compensation plans. Fair value is defined as:

The amount at which that asset (or liability) could be bought (or incurred) or sold (or settled) in a current transaction between willing parties, that is, other than in a forced or liquidation sale.

Using the fair value method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period.

However, SFAS 123R also permits entities to continue to measure compensation costs for employee compensation plans using the intrinsic value based method of accounting prescribed by APB Opinion No. 25, Accounting for Stock Issued to Employees. In this method, compensation cost is the excess, if any, of the quoted market price of the stock at grant date or other measurement date over the amount an employee must pay to acquire the stock.

SFAS 123R also applies to transactions in which an entity issues equity instruments to acquire goods and services from nonemployees.

Back To Top

 

Disclaimer The information contained in this web site is not legal advice; it is for educational purposes only. Use of Apogee Business Valuations, Inc. website does not create a client relationship between you and Apogee Business Valuations, Inc., even if you provide this web site, whether by e-mail or through one of its software programs, with your personal or confidential information.