Statement of Financial Accounting Standards No. 123 (revised 2004) Share-Based Payment (SFAS 123R), was issued in December of 2004 by the Financial Accounting Standards Board (FASB). In summary, SFAS 123R addresses the accounting for transactions in which an entity exchanges its equity instruments for goods or services. The Statement eliminates the ability to account for share-based compensation transactions under the intrinsic-value method utilizing APB Opinion No. 25, Accounting for Stock Issued to Employees, and generally requires that such transactions are accounted for using the fair-value method.

FASB Standard:

• SFAS 123R Full Text of Standard, December 2004
  
  
• SFAS 123R Summary of Standard, December 2004
  
  
• FASB Staff Positions (FSPs) Relevant to SFAS 123R
  

Since the issuance of SFAS 123R, and the approaching public company effective date, there have been various questions regarding the fundamentals of the standard, its application and the differences between this standard and its predecessor standard. In response to these questions, various initiatives have been undertaken and the Center for Audit Quality (Center) has launched a new section of our Web site in order to provide SFAS 123R educational materials to our member firms which are centrally located all in one section.

SEC Guidance:

• Letter from SEC Chief Accountant to Council of Institutional Investors concerning the use of market instruments for the purpose of valuing employee share-based payment awards under FASB Statement No. 123R (February 2007) and SEC Letter to Zions Bancorporation (January 2007)
  
  

• SEC Issues Staff Progress Reports on Market Approaches to Valuing Employee Stock Options Under SFAS 123R (September 2005)—SEC Office of Economic Analysis has issued an informal staff progress report on the ongoing SEC evaluation of proposals to value employee stock options for financial reporting purposes in accordance with SFAS 123R.
  
  
• SEC Final Rule: Amendment to the Compliance Date for SFAS 123R (April 2005 Final Rule)—The SEC deferred the compliance dates for SFAS 123R which will now allow companies to implement FAS 123R at the beginning of their next fiscal year, instead of to the next reporting period that begins after June 15, 2005, or December 15, 2005, for small business issuers.
  
  
• SEC Final Rule Release Deferring FAS 123R Compliance Dates and Clarification on the Effect on the Independent Auditor's Reports (April 2005 CPCAF Summary)—The SEC announced the adoption of a new rule that defers the compliance dates for Financial Accounting Standard Board's Statement of Financial Accounting Standards No. 123 (revised 2004), Share Based Payment.
  
  
• Securities and Exchange Commission's Office of Economic Analysis Memorandum, "Economic Perspective on Employee Option Expensing (March 2005)
  
  
• Staff Accounting Bulleting No. 107, "Share-Based Payment" (SAB 107)—SEC staff's views regarding the application of SFAS 123R and the interaction between SFAS 123R and certain SEC rules and regulations.
  
  
  • View CAQ High Level Summary of SEC SAB 107

Learn more about SFAS 123R from the many sources below. The Center will continually update this section of our Web site with new SFAS 123R tools and resources, so users should be sure to bookmark this page and visit it often in the future for updates.

PCAOB Guidance

• PCAOB Issues Guidance on Auditing the Fair Value of Share Options Granted to Employees (October 2006)
  
  
• PCAOB Staff Audit Practice Alert No. 1 – Matters Relating to Timing and Accounting for Options Grants (July 2006)
  
  
• PCAOB Chairman Testimony - Concerning Certain Issues Related to Companies' Stock Option Granting Practices (September 2006)
  

SEC Regulations Committee

• Grant Date Fair Value of Equity Award with Performance Conditions in Grants of Plan-Based Awards Table (Item 402(d)(2)(viii) of Regulation S-K) (Discussion Document I from the April 17, 2007 SEC Regulations Committee Joint Meeting with the SEC Staff)
  
  
• Treatment in Pre-Adoption Pro Forma Income Statement of Options Given to Employees of a Target in a Business Combination after the Acquirer has Adopted Statement 123(R) (Discussion Document C from the September 26, 2006 SEC Regulations Committee Joint Meeting with the SEC Staff)
  
  
• FAS 123(R) Disclosures in Interim Periods during the Year of Adoption (Discussion Document E from the June 20, 2006 SEC Regulations Committee Joint Meeting with the SEC Staff)
  
  
• Pro Forma Financial Information Required in Registration Statements upon Adoption of Statement 123(R) Using the Modified Prospective Transition Method (Discussion Document G from the June 20, 2006 SEC Regulations Committee Joint Meeting with the SEC Staff)

Learn More about SFAS 123R:

• FASB Frequently Asked Questions (FAQs)—This document contains various questions and answers regarding the FASB’s decision on accounting for share based payment transactions. This document also contains a condensed summary of SFAS 123R; an organizational structure of SFAS 123R and appendices; a listing of principal reasons for issuing the statement; key accounting provisions of the statement; required disclosures of the statement; and effective dates and transitions for both public and non-public entities.
  
  
• FASB Issues Final Statement on Accounting for Share-Based Payment (Press Release, December 2004) FASB announcement of the publishing of SFAS 123R.
  
  
• FASB Technical Inquiry Service—If you have a specific SFAS 123R question, here's where to go to find the answers. During the AICPA's SEC Quarterly Update Series 2005—1^st Quarter, Michael W. Tovey, FASB project manager, requested that any questions/concerns regarding FAS 123R should be sent via e-mail to this FASB Technical Inquiry e-mail address.
  
  
• Commission Amends Compliance Dates for FASB Statements No. 123R on Employee Stock Options (Press Release, April 2005)—SEC announcement of the final rule amending the compliance dates of SFAS 123R, including examples.
  
  
• SEC's Office of the Chief Accountant and Division of Corporation Finance Release Staff Accounting Bulletin 107 (Press Release, March 2005) SEC Office of the Chief Accountant and the Division of Corporation Finance announcement of the release of SAB 107.
  
  
• SEC Chief Accountant Statement on FASB Statement No. 123(R), Share-Based Payment (Press Release, December 2004 ) SEC Chief Accountant's remarks on SFAS 123R and the implementation process for companies.
  

Useful Tools:

• Testimony Concerning Tax and Accounting Issues Related to Employee Stock Option Compensation - by John W. White, Director, SEC Division of Corporation Finance (June 2007)

• Avoiding FASB 123(R) Pitfalls - NOL companies’ choice of when to recognize tax benefits under FASB 123(R) can affect their bottom line (Journal of Accountancy- May 2007)
  

• Frontline Reaction to FASB 123(R) (Journal of Accountancy Article, April 2007)- Few U.S. businesses have hit on a definitive solution for minimizing the impact of the new rules
  
  
• A Road Map for Share-based Compensation (Journal of Accountancy Article, April 2007) – As they implement the provisions of FASB Statement no. 123(R), companies should take a fresh look at their share-based employee compensation.
  
  
• AICPA Issues Financial Reporting Alert on FASB 123 (R) and SEC SAB 107 – This alert provides an overview of FAS 123 (R) and SEC SAB 107, which govern the accounting for employee stock options and other equity and equity-linked instruments that are exchanged by a public entity in return for services.
  
  
• How to "Excel" at Options Valuation (Journal of Accountancy Article, December 2005)—Useful article on how to build a flexible, spreadsheet-based lattice valuation model for better calculations.
  
  

• CFO Quarterly Roundtable Series—3rd Quarter 2005 (CD-ROM)—This archived AICPA Web cast, which was originally presented on September 14, 2005, includes an advanced discussion of the professions leading SFAS 123R experts on topics such as picking the appropriate valuation model; satisfying your auditors by understanding the documentation requirements and the need to enhance the auditability of the 123R implementation process; and tackling the calculation of the additional paid-in-capital windfall or shortfall as of the date of transition.
  
  

• Accounting for Stock Options and Other Stock Based Compensation—Updated for 2005 (CPE Self Study Course)—Understand the conceptual framework for the revised SFAS No. 123 and apply methods for measuring fair value.
  
  

• No Longer an "Option" (Journal of Accountancy Article, April 2005)—Useful article that provides an executive summary of FAS 123R, including discussions of the Black-Scholes model, the requirements of the statement, how to implement it, unresolved issues and practical tips, as well as a glossary of terms and a case study.
  
  

• SEC Quarterly Update Series 2005—1st Quarter (CD-ROM) This archived AICPA Web cast, which was originally presented on March 16, 2005, and sponsored by the Center for Audit Quality, included an informative discussion of the FASB's new accounting standard on fair value accounting for stock options. This Web cast focuses on the significant elements of this new standard and its implications on executive compensation strategies.
  
  

• Stock-Based Compensation Strategies Under FASB Statement No. 123[R] [part of the CFO Roundtable Series] (CD-ROM) This archived AICPA Web cast, which was originally presented on February 23, 2005, focuses on the significant implications this Standard has on executive compensation strategies. It begins with a detailed technical discussion of the new standard and is followed by a discussion of how compensation experts can begin to implement it.