Attention CEPI students: Starting in 2020, the CEPI curriculum is all-digital, and the CEPI provides you digital access to the books, including this, as part of the exam fee. You still can buy the printed books from us as a supplement to the free digital access you receive from the CEPI. See our CEPI information page.
Accounting for equity compensation is one of the most challenging and complex areas of stock plan administration. Written in plain English for non-accountants, this book is a survival guide for understanding the impact of stock compensation on corporate financial statements. Authored by leading expert Barbara A. Baksa, the text provides an overview of the U.S. accounting principles that apply to stock plans, including how to compute and record award expense, dealing with modifications of awards, reconciling tax effects, and considerations for private companies. The final chapter provides a set of examples that apply the rules to various situations. The 16th edition has been updated for 2020, incorporating expanded discussions of the accounting treatment of performance awards. (Note: this book does not address ESOP accounting.)
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Table of Contents
Chapter 1: Introduction: How Did We Get Here?
Chapter 2: Overview of the Standard
Chapter 3: Measurement Date
Chapter 4: Measurement of Expense
Chapter 5: Expense Attribution
Chapter 6: Accounting for Tax Effects
Chapter 7: Financing Exercise Transactions and Tax Withholding
Chapter 8: Modifications
Chapter 9: Business Combinations
Chapter 10: Earnings per Share
Chapter 11: Employee Stock Purchase Plans
Chapter 12: Stock Appreciation Rights
Chapter 13: Private Companies
Chapter 14: Disclosures
Chapter 15: Effective Date and Transition Methods
Chapter 16: Examples
About the Author
About the NCEO
From Chapter 5, "Expense Attribution"
This chapter describes how expense is recorded for options and awards granted to employees. Expense for options and awards issued to nonemployees, other than outside directors, is recognized in the same period(s) and in the same manner as if the company had paid cash for the goods or services received from the nonemployee. For typical grants to nonemployees, it is expected that expense will be recognized in the same manner as for grants issued to employees, as described herein, especially where the terms of the grants mirror that of the grants the company issues to its employees. In some circumstances, expense for options and awards issued to nonemployees may be recorded differently than for grants to employees. Companies should consult their accounting advisors for further guidance.
Once the expense for an option or award granted to an employee is determined, it is recorded over the service period of the award, which is typically the vesting period. For options and awards that are subject to cliff vesting (i.e., the entire award vests in full on a single date), expense is accrued on a straight-line basis over the vesting period. For options and awards with graded service-based vesting (e.g., monthly, quarterly, or annual vesting), ASC 718 (formerly SFAS No. 123(R)) permits two alternative attribution methods; expense can be recorded on a straight-line basis over the full service period (provided that the amount of expense recorded at any point is proportionate to the percentage of the option or award that is currently vested), or expense can be recorded in an accelerated manner where each vesting increment is treated as a separate award (sometimes referred to as the “FIN 28” approach since this approach was first introduced in FASB Interpretation No. 28).