Academic journal article Journal of Accountancy

FASB Issues Final Statement on Stock Compensation

Academic journal article Journal of Accountancy

FASB Issues Final Statement on Stock Compensation

Article excerpt

After considering for more than 10 years the controversial issue of how companies should account for stock compensation, the Financial Accounting Standards Board has issued Statement no. 123, Accounting for Stock-Based Compensation. The new rules are effective for calendar-year 1996; however, companies will be required to include in that year's financial statements information about options granted in 1995.

The standard encourages but does not require companies to account for stock compensation awards based on their fair value at the date the awards are granted, with the resulting compensation cost shown as an expense on the income statement. If they continue to apply current accounting requirements, companies will have to disclose in a note to the financial statements what the net income and earnings per share would have been had they followed the new accounting method.

Sally L. Hoffman, a partner of Richard A. Eisner & Company, LLP, New York, says that "Statement no. 123 is important because even though it makes adoption of the fair value accounting optional for recognition in the financial statements, it does require disclosure. …

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