|
Archive@NYU >
Stern School of Business >
Accounting Working Papers >
Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/27588
|
| Title: | Accounting for Share-Based Payments |
| Authors: | Ronen, Joshua |
| Keywords: | options
share-based payments |
| Issue Date: | 3-Oct-2006 |
| Series/Report no.: | Joshua Ronen-08 |
| Abstract: | On December 16, 2004, the Financial Accounting Standards Board published
FASB Statement No. 123 (revised 2004), which significantly changes the
accounting for employee stock options. Under the new standard,
equity-based compensation results in a cost to the issuing enterprise
and should be measured at its fair value on the grant date, based on the
estimated number of awards that are expected to vest. I contend that
expensing stock or option grants is not responsive to either the needs
of a corporation's creditors, or to the needs of equity investors since
the cost of the share-based payments is borne only by the pre-existing
shareholders; the corporation itself suffers no sacrifice in assets or
other resources (unless its own shares are considered an asset, which is
not the case under the present Conceptual Framework and GAAP). Hence I
suggest the use of three separate statements instead of the single
income statement now provided. Specifically, I propose that the first
statement - the "Corporation Income Statement" - not include
share-based payments as an expense. Rather, a "Statement of Costs
and Benefits to Pre-existing Shareholders" would show the dilution
cost to the pre-existing shareholders; this dilution cost would be
determined as the amounts that, if accrued during each year throughout
the vesting period and until exercise, would cumulatively sum to the
intrinsic value at exercise (the price of the optioned share minus the
exercise price). A combined "Statement of Enterprise Income"
would then show the totals of the amounts reported in the other two
statements. The combined statement would reflect the net income from
operations with regard to both the corporation and its pre-existing
shareholders; that is, it would reflect the cost of manufacturing
products or rendering services. This paper also discusses the
implications of this proposal for the debate on the distinctions between
liabilities and equities and for the treatment of inseparable compound
securities such as convertible bonds. |
| URI: | http://hdl.handle.net/2451/27588 |
| Appears in Collections: | Accounting Working Papers
|
All items in Faculty Digital Archive are protected by copyright, with all rights reserved.
|
