...Should Sooner or Later use the $6 grant-date fair value or the $9 grant-date fair value to measure its compensation cost? Codification 718-10-30-6 states the measurement objective for equity instruments awarded to employees is to estimate the fair value at the grant date of the equity instruments that the entity is obligated to issue when employees have rendered the requisite service and satisfied any other conditions necessary to earn the right to benefit from the instruments (for example the exercise share options). That estimates is based on the share price and other pertinent factors, such as expected volatility, at the grant date. In this case Sooner or Later is issuing stock options to employees in order to align their compensation with the performance of the company. However these options can only be vested if revenue for the company is greater than $10 million over a three year period and employees are still employed with the company. The debate is whether Sooner or Later should grant the stock at $9 which is the current grant date fair value or grant the stock at $6 which the fair value taking into consideration the revenue target. According to Codification 718-10-30-6 Sooner or Later should grant the stock at $9 because this is the fair value at the grant date not at some future grant date when conditions have been met. However, Codification 718-10-30-15 Market, performance, and service conditions (or any combination thereof) may affect an award’s exercise...
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...the fair value does not change during the life of the award unless we modified the term. If company able to measure compensation cost at $6 grant date fair value only when revenue factor was fulfill. However, whether or not the $6 is based on the fair value of the employee’s share. Accordingly, we believe that the arrangement in the question must be accounted as compensation under ASC 718. Even If the performance compensation based has not met, the award price relatively stays stable. As long as the employee meet the fair value measurement. The company recognize the compensation cost on the grant date, which is when the employee performer the service. Soon or later should use fair value $6 at grant date. According to ASC, 178-10-30-6, “the measurement objective for equity instruments awarded to employees is to estimate the fair value at the grant date of the equity instruments that the entity is obligated to issue when employees have rendered the requisite service and satisfied any other conditions necessary to earn the right to benefit from the instruments (for example, to exercise share options). That estimate is based on the share price and other pertinent factors, such as expected volatility, at the grant date.” Thus, if we have earned revenue greater than 10 millions than we can use $6 fair value at the grant date. Furthermore, ASC, 178-10-55-64 says “performance or service conditions that only affect vesting are excluded from the estimate of grant-date fair value...
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...Should Sooner or Later use the $6 grant-date fair value or the $9 grant-date fair value to measure its compensation cost? Codification 718-10-30-6 states the measurement objective for equity instruments awarded to employees is to estimate the fair value at the grant date of the equity instruments that the entity is obligated to issue when employees have rendered the requisite service and satisfied any other conditions necessary to earn the right to benefit from the instruments (for example the exercise share options). That estimates is based on the share price and other pertinent factors, such as expected volatility, at the grant date. In this case Sooner or Later is issuing stock options to employees in order to align their compensation with the performance of the company. However these options can only be vested if revenue for the company is greater than $10 million over a three year period and employees are still employed with the company. The debate is whether Sooner or Later should grant the stock at $9 which is the current grant date fair value or grant the stock at $6 which the fair value taking into consideration the revenue target. According to Codification 718-10-30-6 Sooner or Later should grant the stock at $9 because this is the fair value at the grant date not at some future grant date when conditions have been met. However, Codification 718-10-30-15 Market, performance, and service conditions (or any combination thereof) may affect an award’s exercise...
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...Sooner or Later should use the $9 grant-date fair value to measure the compensation cost. One of the necessary requirements for the employee stock options to vest would be if the cumulative revenue over the following three-year period is greater than $10 million. If the revenue target was factored into the fair value assessment, the grant-date fair value would be $6. Per FASB ASC 718-10-30-27: Performance or service conditions that affect vesting are not reflected in estimating the fair value of an award at the grant date because those conditions are restrictions that stem from the forfeitability of instruments to which employees have not yet earned the right. However, the effect of a market condition is reflected in estimating the fair value of an award at the grant date (see paragraph 718-10-30-14). For purposes of this Topic, a market condition is not considered to be a vesting condition, and an award is not deemed to be forfeited solely because a market condition is not satisfied. Additionally, according to FASB ASC 718-10-55-64: Performance or service conditions that only affect vesting are excluded from the estimate of grant-date fair value, but all other performance or service conditions that affect an award’s fair value are included in the estimate of grant-date fair value. Sooner or Later’s employees have not yet met all service requirements associated with the stock compensation. As such, per the codification, the service conditions (the revenue...
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...million and the employees are still employed by the company. As of the grant date, management believes that it is probable that the company's cumulative revenue over the next three-year period will be greater than $10 million. The grant-date fair value for each award is $9, though the company's valuation professionals have indicated that the grant-date fair value would be $6 if the fair value assessment includes the revenue target. Sooner or Later Inc. adopted ASC 718, Compensation – Stock Compensation in 2005, and it did achieve cumulative revenue in excess of $10 million over the next three years. The first problem in the case inquires whether Sooner or Later Inc. should use the $6 grant-date fair value or the $9 grant-date fair value to measure its compensation cost. The answer is Sooner or Later Inc. should use the $9 grant-date fair value. According to ASC 718-10-30-27, the grant-date fair value should not incorporate performance or service conditions that affect vesting because those conditions are restrictions that come from the forfeitability of instruments to which employees have not yet earned the right to benefit from the instruments. Sooner or Later Inc.'s restriction that employee stock options will vest only when cumulative revenue surpasses $10 million only affects vesting. Its performance condition does not affect factors that are being considered in measuring the grant-date fair value such as exercise price or contractual term. Also, the company does not...
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...employed by Sooner or Later Inc. They adopted ASC 718, Compensation-Stock Compensation in 2005. 1. The grant-date fair value of each award is $9. With the revenue target factored into the fair value assessment the grant-date fair value is $6. 2. Management believes it is probable the company will achieve cumulative revenue in excess of $10 million. 3. The requisites to vest were fulfilled. Revenue of $2 million, $5 million and $4 million was collected in 2006, 2007 and 2008 respectively. Identification of Questions & Alternatives Sooner or Later Inc has the following issue that need to be resolved: 1. Should Sooner or Later use the $6 grant-date fair value or the $9 grant-date fair value to measure its compensation cost? 2. Over how many years should Sooner or Later recognize compensation cost associated with the stock options? How much compensation cost, if any, should be recognized in each of those years? Conclusions and Authoritative Reasoning 1. Sooner or Later Inc. should use the $6 grant-date fair value. a. ASC 718-10-30-6 states that “The measurement objective for equity instruments awarded to employees is to estimate the fair value at the grant date of the equity instruments that the entity is obligated to issue …That estimate is based on the share price and other pertinent factors, such as expected volatility, at the grant date.” b. ASC 718-10-55-64 states that “Market, performance, and service conditions may affect an award’s...
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...Sooner or Later adopted ASC 718, Compensation- Stock Compensation. And ASC 718-10-30-2 says “A share-based payment transaction with employees shall be measured based on the fair value (or in certain situations specified in this Topic, a calculated value or intrinsic value) of the equity instruments issued.” Therefore, the company should use fair value measurement to calculate its compensation cost. The question is that which grant-date fair value should use to measure the company’s compensation cost. In my opinion, the company should use the $9 grant-date fair value. Because the performance conditions which company considered only affect vesting. ASC 718-10-30-27 refers that “Performance or service conditions that affect vesting are not reflected in estimating the fair value of an award at the grant date because those conditions are restrictions that stem from the forfeitability of instruments to which employees have not yet earned the right.” So the revenue target should not be factored into the fair value assessment. Besides, according to ASC 718-10-55-64, “Performance or service conditions that only affect vesting are excluded from the estimate of grant-date fair value, but all other performance or service conditions that affect an award’s fair value are included in the estimate of grant-date fair value.” In this case, award will vest only if cumulative revenue over the following three-year reporting period is greater than $10 million and the employees are still employed...
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...instrument of equal or greater value, incurring additional compensation cost for any incremental value. The effects of a modification shall be measured as follows: ? a. Incremental compensation cost shall be measured as the excess, if any, of the fair value of the modified award determined in accordance with the provisions of this Topic over the fair value of the original award immediately before its terms are modified, measured based on the share price and other pertinent factors at that date. b. Total recognized compensation cost for an equity award shall at least equal the fair value of the award at the grant date unless at the date of the modification the performance or service conditions of the original award are not expected to be satisfied. Thus, the total compensation cost measured at the date of a modification shall be the sum of the following: ? o 1. The portion of the grant-date fair value of the original award for which the requisite service is expected to be rendered (or has already been rendered) at that date o 2. The incremental cost resulting from the modification. Calculate total compensation expense: $15 estmated fair value per option * 1000 options granted = $15000 the total compensation is allocated to repense over the 4- year service (vesting) period:2012-2015 $15000/4years=$ 3750 Jan 1, 2014 Fair value of modified share option...
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...Department of Accounting From: Group #3 (Taylor Penick, Bret, Mike) Date: June 12, 2012 Subject: Acctg 642: Case 08-2, Sooner or Later Inc. Statement of Facts On January 1, 2006 Sooner or Later Inc. granted 1,000 stock options. The exercise price of the options is equal to the stock price at the grant date. The company has included the following provisions to the options: 1. Stocks options will only vest if the cumulative revenue over the following 3-year period is greater than $10 million 2. The employee must still be employed by the company. The company calculated two different fair values for the stock on the grant date as follows: 1. The actual grant-date fair value was $9 per option. 2. If the revenue target stated early is achieved and factored into the fair value assessment, they calculate the value to be $6 per option. Sooner or Later Inc. adopted ASC 718, Compensation-Stock Compensation (FASB Statement No. 123(R), Shared-Based Payment), in 2005. The revenue for the requisite years are as followed: 1. 2006: $2 million 2. 2007: $5 million 3. 2008: $4 million Identification of Questions and Alternatives The following questions and alternatives have been identified with respect to appropriate grant-date value and the length of recognition associated with the options: 1. At what price should the stock options be valued? a. Alternatives include: the fair value assessment of $9 or the fair value assessment after the $10 million target is factored in. b. Should...
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...of $10 million over a three year vesting period. The service condition, instead, requires that the eligible employees have to be still employed by Long Shot after the three-year reporting period. These conditions have both to be met to vest the options. Based on ASC 718-10-30-27 Long Shot should use the $9 grant-date fair value to measure its compensation cost. The codification determines that performance and service conditions are not reflected in the estimate of the fair value of an award at the grant date because those conditions are restrictions that stem from the forfeitability of instruments to which employees have not yet earned the right. Since the $6 grant-date fair value has the revenue target factored into the fair value assessment it should not be used. Plus to strengthen the previous stated paragraph, ASC 718-10-55-64 says “Performance or service conditions that only affect vesting are excluded from the estimate of grant-date fair value”. As mentioned above current conditions affect exclusively vesting and thus are not to be factored into the fair value at the grant date. Compensation cost is generally recognized from the grant date through the vesting date. ASC 718-10-30 requires an estimate of the requisite service period based on an analysis of all vesting conditions, explicit, implicit, and derived service periods, and the probability that performance or service conditions will be satisfied. Long Shot should recognize compensation cost associated with the stock...
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...Comparison between U.S. GAAP and International Financial Reporting Standards May 2013 © 2013 Grant Thornton LLP All rights reserved U.S. member firm of Grant Thornton International Ltd Comparison between U.S. GAAP and International Financial Reporting Standards 2 Contents 1. Introduction .................................................................................................................................................. 6 International standards and the IASB ............................................................................................................ 6 Financial accounting and reporting in the United States ................................................................................ 6 IFRS and U.S. GAAP comparison ................................................................................................................. 6 Overall financial statement presentation ................................................................................................... 8 General .......................................................................................................................................................... 8 Statement of financial position / balance sheet .............................................................................................. 9 Statement of comprehensive income / income statement ........................................................................... 12 Statement of changes in equity...
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...employee recruitment services (Monster Worldwide, Inc.). In addition to their services Monster generates revenue by selling advertisement space on their websites. Some of Monster’s competitors include Adecco S.A., CareerBuilder, LLC and SnagAJob.com (Hoovers 2013). - The cumulative amount of the fraud and its financial statement effects and the length of its perpetration/criminal activity Monster reported “materially misleading” financial statements regarding the real grant date and exercise price of certain employee benefit stock option plans in all SEC filed documents during the years 1997-2005 (U.S.D.J. 2007). This included falsely stating the fair market value of the options further inflating their value. Monster accounted for these stock options as “in-the-money” options which is permissible under U.S. GAAP. However in doing so they forged the actual date the stocks were granted on thus recording no compensation expense for the interim days which is not an acceptable accounting technique. The dates chosen were used because of their low closing price. The results were an understated compensation expense balance and inflated earning figures. The approximate amount by which earnings were inflated was $339,000,000 according to the U.S. Department of Justice. Monster paid a $2.5 million penalty in settlement of the SEC’s charges against them. Charges alleged that Monster...
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...The Road to IFRS in India A practical guide to IFRS 1 and first-time adoption The Road to IFRS in India - A practical guide to IFRS 1 and first-time adoption 2 Introduction The Road to IFRS International Financial Reporting Standards (IFRS) is fast becoming the global accounting language. Over 100 countries have now adopted IFRS and many more have committed to make the transition in the next few years. The benefits of global standards are widely acknowledged. For companies, however, the conversion to IFRS is a major change both for the finance function and for the wider business. The International Accounting Standards Board (IASB) has recognised the need for guidance. In 2003 it published IFRS 1 First-time adoption of International Financial Reporting Standards (IFRS 1). IFRS 1 covers the application of IFRS in a company's first IFRS financial statements. It starts with the basic premise that an entity applies IFRS for the first time on a fully retrospective basis. However, acknowledging the cost and complexity of that approach, it then establishes various exemptions in areas where retrospective application would be too burdensome or impractical. IFRS convergence in India India is one of the largest jurisdictions that is currently going through the process of convergence with IFRS. Considering the diversity and complexity amongst Indian Companies that will transition to IFRS reporting, the Ministry of Corporate Affairs (MCA) has announced a roadmap which requires...
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...Chapter 16 Dilutive securities and earnings per share Learning objectives After studying this chapter, you should be able to: 1. Describe the accounting for the issuance, conversion, and retirement of convertible securities. 2. Explain the accounting for convertible preferred stock. 3. Contrast the accounting for stock warrants and for stock warrants issued with other securities. 4. Describe the accounting for stock compensation plans 5. Discuss the controversy involving stock compensation plans 6. Compute earnings per share in a simple capital structure 7. Compute earnings per share in a complex capital structure. As the opening story indicates, companies are rethinking the use of various forms of stock-based compensation. The purpose of this chapter is to discuss the proper accounting for stock-based compensation. In addition, the chapter examines issues related to other types of financial instruments, such as convertible securities, warrants, and contingent shares, including their effects on reporting earnings per share. Dilutive securities Debt and equity Many of the controversies related to the accounting for financial instruments such as stock options, convertible securities, and preferred stock relate to whether companies should report these instruments as a liability or as equity. For example, companies should classify nonredeemable common shares as equity because the issuer has no obligation to pay dividends or repurchase the...
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...Committee, and Executive Committee. Three former Comverse executives were charged August 9/2006 for creating secret slush funds and backdating stock options causing Comverse to publicly file false financial reports, deliberately misstating earnings. The scheme took place from 2001 through to 2005. The former CEO Jacob ‘Kobi’ Alexander, former CFO David Kreinberg, and former General Counsel William F. Sorin manipulated millions of stock options by backdating them to when stock prices were at low point. As part of the scheme executives made material misrepresentation to shareholders regarding stock option grants and concealed the compensation expense, thus overstating its net income and earnings per share. By using hind-sight 20-20 they were able to find dates were the stock was low and use that date as the grant date of the stock option. Instead of using the original dates granted they changed or forged the documents so that a larger profit could be realized. The slush fund was created by using fictitious employees and granting them options. Like many other organizations Comverse offered stock options to executives and other...
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