At its August 4 meeting, the Norwalk, Connecticut-based accounting rulemaker hashed out some of the issues that were brought up both at public roundtables held in June and in 13,775 comment letters FASB has received since its March release of the initial exposure draft. As for rumors of a possible postponement of the effective date of the regulations, FASB said it would address those concerns later in the development cycle of the final regulations.
“As the board moves through its final deliberations and begins to address critical accounting issues, which may affect the proposed effective date, it will carefully assess the factors noted above in deciding upon the appropriate effective date(s) and complete that assessment as quickly as possible,” FASB said.
Under FASB’s Exposure Draft issued on March 31, all forms of share-based payments to employees would be treated the same as other forms of compensation by recognizing the related cost in the income statement. The expense of the award generally would be measured at fair value at the grant date (See The Bottom Line: Expensing Proposition ). To arrive at this cost, FASB provided several valuation techniques in the Exposure Draft, including a lattice model (an example of which is a binomial model) and a closed-form model (an example of which is the Black-Scholes-Merton formula) that would meet the criteria for estimating the fair values of employee share options.
During the August 4 discussion, FASB provided some guidance on issues brought up in comments, such as:
- fair value is the appropriate basis for measurement of equity awards made by public companies to their employees;
- grant date is the appropriate point of measurement for such stock compensation awards;
- “requisite service period” is the proper basis for attribution of the cost of equity-based compensation, defining the term as “the period or periods during which an employee is required to perform service in exchange for an award under a share-based payment arrangement.”
More information about the August 4 meeting is available at www.fasb.org under “Action Alert.”
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