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January 2005
FASB Issues Controversial Standard on Equity-Based Compensation 
Submitted by: Joyce Skinner
The Financial Accounting Standards Board held a press conference on December 16, 2004 to announce the release of FASB Statement No. 123 (revised 2004), Share-Based Payment. Holding a press conference to announce the release of a Statement is an unusual move, but this Statement is highly politically charged. Since the Statement will not be effective, at the earliest, until periods beginning after June 15, 2005, there is ample time for opponents to continue to voice their opinions before the Statement becomes effective. Opposition continues to include the possibility of congressional intervention.
This Statement is of interest to any company that issues employee stock options or otherwise receives employee services in exchange for its equity instruments or in exchange for liabilities that are based on the fair value of the company's equity instruments or that may be settled by the issuance of those equity instruments. Statement No. 123(R) covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans.
For public companies, the cost of employee services received in exchange for equity instruments generally should be measured at fair value at the grant date. The cost is then recognized over the requisite service period (often the vesting period). The cost of employee services received in exchange for an award of liability instruments should be measured initially at fair value and remeasured subsequently at each reporting date through the settlement date. Changes in fair value during the requisite service period will be recognized as compensation cost over that period.
The grant-date fair value should be estimated using option-pricing models adjusted for the unique characteristics of those options and instruments. The Black-Scholes model is one example of an acceptable model, and the binomial model is another example. If an equity award is modified after the grant date, incremental compensation cost will be recognized in an amount equal to the excess of the fair value of the modified award over the fair value of the original award immediately before the modification.
Nonpublic companies must measure the cost of employee services received in exchange for equity instruments based on the grant-date fair value of those instruments, except in certain circumstances. If it is not possible to reasonably estimate the fair value of equity share options and similar instruments because it is not practicable to estimate the expected volatility of the entity's share price, a nonpublic entity is required to measure its awards of equity share options and similar instruments based on a value calculated using the historical volatility of an appropriate industry sector index instead of the expected volatility of its share price. Nonpublic companies may elect to measure compensation cost of liability awards at intrinsic value through the date of settlement.
These changes in accounting replace existing requirements under FASB Statement No. 123, Accounting for Stock-Based Compensation, and eliminate the ability to account for share-based compensation transactions using APB Opinion No 25, Accounting for Stock Issued to Employees. This Statement does not change the accounting for similar transactions involving parties other than employees, or the accounting for employee stock ownership plans that are subject to AICPA Statement of Position 93-6, Employers' Accounting for Employee Stock Ownership Plans.
Publicly traded companies, other than small business issuers, must apply this Standard as of the beginning of the first interim or annual period that begins after June 15, 2005. Public entities that file as small business issuers must comply as of the beginning of the first interim or annual reporting period that begins after December 15, 2005. Nonpublic entities are not required to apply Statement 123(R) until the beginning of the first annual reporting period that begins after December 15, 2005. New Tax Deductions
Written by: Stephanie Kingsford
The American Jobs Creation Act of 2004 authorized a new deduction for the tax years 2004 and 2005 for those individuals who are able to itemize deductions on their individual tax return. The Act allows the individual to choose between deducting the state and local income taxes or sales taxes. Taxpayers will not be able to deduct both and will indicate their choice by checking a box on the Form 1040, Schedule A.
The sales tax deduction will be either actual sales tax paid during the year as evidenced by the individual's receipts or an amount from the Optional State Sales Tax Tables. The tables give the amount of the state sales tax deduction available using the taxpayer's income level, number of exemptions and resident state. Sales taxes paid on items used in a trade or business may not be included. The use of the tables will ease the recordkeeping burden of taxpayers who are trying to keep up with their actual receipts. The Internal Revenue Service also explains how to add an amount for local sales tax, if appropriate.
Along with the table amounts for state and local sales tax, taxpayers may also add the amount of tax paid for the following:
- "A motor vehicle, but only up to the amount of tax paid at the general sales tax rate; and
- An aircraft, boat, home (including mobile or prefabricated), or home building materials, if the tax rate is the same as the general sales tax rate."
This deduction will mainly benefit taxpayers with a state and local sales tax but no income tax. Those taxpayers are in the states Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. However, it may give a larger deduction to a taxpayer who has paid more in sales taxes than in income taxes. For instance, if a taxpayer bought a new car boosting the sales tax total. It may also benefit retired individuals whose retirement income is not subject to state income tax. Coffee Talk
Beason & Nalley proudly participated in Toys for Tots Program sponsored by the U.S. Marine Corps.
Scott Butler, Darryl Walker and Chad Braley will be teaching the Government Contract Accounting Systems Compliance course in Washington, DC on January 26-27. This course is presented by Federal Publications Seminars. Related Information:
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