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The Employee Ownership Update

Corey Rosen

September 4, 2003

(Corey Rosen)

IASB Postpones Decision on Equity Accounting Rules

The International Accounting Standards Board (IASB) has postponed issuing standards for equity based compensation until the end of July 2004. It had been anticipated that a decision could be reached by the end of 2003. This will probably mean a similar delay in any final guidelines from the U.S. Financial Accounting Standards Board (FASB). The delay is over technical matters in how to write the final rules, not a change in the IASB's position that equity compensation should show as a compensation cost. Intense pressure on the IASB continues, however, especially on the issue of exempting broad-based plans. So far, however, there is little reason to expect that effort will succeed.

Cost Accounting Standards Board Issues ESOP Reimbursement Rules

The Cost Accounting Standards Board, part of the Office of Federal Procurement Policy at the Office of Management and Budget, has issued proposed regulations on how companies with ESOPs will be reimbursed in government contracts. The issue has been controversial for over two decades. Prior rules were at best ambiguous and often illogical, treating ESOPs that paid out in annuities as different from ESOPs that did not, for instance. The new proposed rules would reimburse contractors based on the actual cost of contributions to fund the ESOP, typically the amount contributed directly in a non-leveraged plan or the amount used to pay principal on a loan. However, if the plan is structured so that there is not a match in a year between the shares actually allocated and the amount paid on the loan (such as when there is a contribution carryover, additional shares are contributed, or additional shares attributable to a loan payment will be allocated in a future period), then the cost assignable as deferred compensation would be adjusted to reflect these additional allocations. The regulations would only apply to future contracts. Comments on the proposed standards are ebbing solicited. Details are available in the Federal Register, v. 68, No. 161, August 20, 2003.

FASB Decides on Grant Date, SAR, and Cash-Based Stock Award Issues; Effect on ESOPs Unclear

At its August 13 meeting, the Financial Accounting Standards Board (FASB) decided that stock-based compensation that is normally settled in cash, even if it nominally could be settled in shares, should be treated be treated as liabilities, following recent guidance from FASB under FAS 150. The board also tentatively decided that stock-based compensation that has traits similar to financial instruments subject to FAS 150's rules should be treated as liabilities. It is not clear whether ESOPs would be covered by this new ruling as well.

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