...Shared-Based Payment Reporting and Special Purpose Entities (SPE) CC: Team members ______________________________________________________________________________ As an Accounting Firm it is very important that we follow the most recently changed or amended regulations and standards set by the Financial Accounting Standards Board (FASB). As of 2009 the Financial Accounting Standards Board (FASB) has made amendments to Shared-Based Payment Reporting and Special Purpose Entities. The amendments made were to Statements No. 123 and 95 which covers the Share-Based Payments and Statements No. 123 and 95; the FASB. Also revised, Statements No. 166 and 167 which pertains to Special Purpose Entities (SPE). Share-Based Payment Reporting In the process of an audit, it is important to review the accounting process in terms of how share-based payment is reported to Sensure the entity processes are in line with Generally Accepted Accounting Policies (GAAP). Share-based payment is a complex area to both report on and audit as almost every transaction is unique and referencing IFRS No.2 for the purpose of the audit is not always clearly defined. Defined, share-based payment is an arrangement in which an entity purchases goods or services in exchange for issuance of the entity’s equity instruments or cash payments based on the fair value of those equity instruments. IFRS No.2 has two defined two measurements for each possible share-based transaction; as it relates to share-based payment...
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...SUBJECT: Share-based Payment Reporting and Special Purpose Entities The current audit of a publicly traded company involves the evaluation of both share-based payment arrangements and special purpose entity reporting. This memo explains the reporting requirements for share-based payment transactions and special purpose entities and discusses how these requirements relate to the auditing process. Share-based payment reporting: Financial Accounting Standards Board (FASB) defines share-based payment arrangements as follows: “An arrangement under which either of the following conditions is met: a. One or more suppliers of goods or services (including employees) receive awards of equity shares, equity share options, or other equity instruments. b. The entity incurs liabilities to suppliers that meet either of the following conditions: 1. The amounts are based, at least in part, on the price of the entity’s shares or other equity instruments. (The phrase at least in part is used because an award may be indexed to both the price of the entity’s shares and something other than either the price of the entity’s shares or a market, performance, or service condition.) 2. The awards require or may require settlement by issuance of the entity’s shares” (FASB ASC 718-10-20). FASB 718-10-25 details specific guidelines for the recognition of share-based payment transactions (FASB ASC 718-10-25). FASB specifies when the services and costs related to the share-based payment transactions...
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...Treatment for Share-Based Payment Reporting and Consolidation of Special Purpose Entity Week 6 Points to consider Memo on SPE and Share-based payments Evaluate Share-based payment reporting JJH->Share-based employee compensation awards are classified as either equity instruments or liability instruments. The measurement date for estimating the fair value of equity instruments is the grant date; the measurement date for liability instruments is the settlement date. Different rules also apply to public vs. private companies depending on the type of award instrument. (Executive summary, Paragraph 2) http://www.journalofaccountancy.com/Issues/2007/Apr/ARoadMapForShareBasedCompensation.htm Three features to help identify a share based transaction with employee program: 1. Employees that are shareholders are granted additional benefits Additional benefits indicate the entity is dealing with the individuals as employees or providers of services rather than as investors or equity holders. Examples of additional benefits include: • Employees have the right to additional shares if the business performs well (often referred to as a ratchet mechanism). • Employees’ rights depend on whether the entity floats or is sold through a trade sale (ie, in the event of a trade sale an employee may automatically get a cash payment or a number of shares). 2. The arrangement incorporates ‘leaver conditions’Such conditions indicate the entity is dealing with...
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...MEMORANDUM Subject: Share-Based Payment Reporting and SPE Reporting Special Purpose entities (SPE) within publicly traded companies have special accounting rules that one must follow to be compliant with the Generally Accepted Accounting Principles (GAAP). When auditing a company that uses share-based payments and SPE’s this firm needs to be familiar with the proper standards of reporting. To ensure an efficient audit this memo will discuss the treatment of share-based payments as well as the accounting for consolidations relating to SPE’s. This will help in an effort to provide the best services possible to our clients. Client’s Consistency with GAAP Our company shall note that we shall conduct audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards demand that we make sure our audited material is free of misstatement. Throughout the audit we must plan and perform to acquire a reasonable outcome of the financial statements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. The audit also includes evaluating the accounting principles used and important estimates made by management as well as appraising the financial statement presentation. The basis for our opinion relies on a reasonably based audit. Accounting Consolidation Theory A technique used in financial accounting is termed consolidation which combines a group of companies'...
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...of Nike, you asked us to make sure the company is correctly implementing share-based payment reporting and SPE reporting correctly under GAAP. Therefore, the team has done extensive research on two reporting styles, so we fully understand what you are looking for. We will discuss our research on the subjects in this memo for you to review before we make the final steps to start the audit on Nike. In 1993 FASB issue SFAS 123, which required companies to reflect stock based compensation in their operating results. Due to opposition from legislators and special interest groups, companies were only required do footnote disclosures for share-based payments. In 2004 the FASB revised SFAS 123 and issued SFAS 123 (R) which now requires companies to incur stock option compensation expenses. This means that the company must expense the estimated fair value. This new standard has had a significant effect on profits for many companies. The valuation methods required by the FASB are based on pricing models that are complicated and require companies to use a number of assumptions which could cause a material difference in the company’s operating results. Due to the number of estimates and assumptions, users of financial statements should pay close attention to the disclosures and the accounting estimates, particularly those found on Form 10-K and Form 10-Q. Shared-based payment reporting A share-based payment is when the...
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...most significant factor is compliance with the accounting governing bodies, such as GAAP (Generally Accepted Accounting Principles). As an accounting firm, it is vital to examine your financial statements on a constant basis. You will need to look for the accounting handling of share-based payment and accounting consolidation theory, as it pertains to special purpose entities and consolidations (Schroeder, Clark, & Cathey, 2011). Share-Based Payments are another way for a publicly held company to offer compensation to his or her employees or other parties, without using the company’s assets. These compensation awards are usually a set number of stocks within the organization. There was already a system in place to account for these transactions, but a revision to the Statement No. 123 was made in 2004. This statement was geared toward Share-Based Payments and was released December 16, 2004, with the original Statement being published in 1995. This revision was created to provide more accurate financial information to users of publicly traded entities, such as our client. Costs incurred by share-based transactions are now to be disclosed on the company’s financial statements as an expense. The share-based transactions can be made with the company and either an employee or another party. These transactions can be settled in various ways. Some of these ways include settlement through cash, other assets of the company, or by exchange of equity. The costs are founded on the fair value...
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... Paper Enron and the Special Purpose Entity. Use or Abuse? The Real Problem - The Real Focus Neal F. Newman Texas Wesleyan Law School This working paper is hosted by The Berkeley Electronic Press (bepress) and may not be commercially reproduced without the permission of the copyright holder. http://law.bepress.com/expresso/eps/1165 Copyright c 2006 by the author. Enron and the Special Purpose Entity. Use or Abuse? The Real Problem - The Real Focus Abstract In December of 2001, Enron Corporation filed for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code; one of the largest corporate bankruptcy filings at that time. When the investigations commenced and the tangled Enron web was unraveled, it was discovered that Enron had perpetrated a very sophisticated form of accounting fraud through its repeated use of what are referred to as Special Purpose Entities (“SPEs”). In their most basic forms, SPEs are business entities formed for the purpose of conducting a well specified activity such as construction of a gas pipeline, or collection of a specific group of accounts receivable. However, because of their complex nature, SPEs can be used to manipulate a corporation’s financial results, which was the primary use for which Enron employed the SPE structure. As a result, the investment and financial community has cast a dark cloud over the special purpose entity, depicting the SPE as an inherently evil structure whose only purpose is to defraud, obfuscate and manipulate...
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...Auditing a Publicly Traded Company Darren Bruneck, Andrew Green, Shalatikka Smith ACC/541 October 20, 2014 Christine Errico MEMORANDUM TO: Christine Errico, Manager FROM: Darren Bruneck, Andrew Green, Shalatikka Smith DATE: October 20, 2014 SUBJECT: Auditing a Publicly Traded Company The goal of any publicly traded company is to make a profit. Many factors come contribute to the equation to achieve this goal. The most important factor is compliance with the Accounting governing bodies, such as GAAP (Generally Accepted Accounting Principles). As an accounting firm it is essential to review your financial statements for consistency regarding the accounting treatment of share-based payment and accounting consolidation theory as it relates to special purpose entities and consolidations. Non Compensatory stock options are options that are not meant to compensate employees, but rather to raise capital or increase employee ownership in the company. If the option is non-compensatory then the company would treat them like any other stock sale. These types of options do not generate an expense for the company, so in this respect there is no affect to net income. Non-compensatory options must meet certain qualifications such as time in service, being a full time employee, and the same option must be available to all eligible employees. These types of options also have to be exercised in a specific period. Compensatory stock options are considered part...
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...value. If fair values are unavailable, investment is reported at cost. A. Consolidation: when one firm controls another (e.g., when a parent has a majority interest in the voting stock of a subsidiary or control through variable interests, their financial statements are consolidated and reported for the combined entity. A. Equity method: applied when the investor has the ability to exercise significant influence over operating and financial policies of the investee. 1. Ability to significantly influence investee is indicated by several factors including representation on the board of directors, participation in policy-making, etc. 2. According to GAAP guidelines, the equity method is presumed to be applicable if 20 to 50 percent of the outstanding voting stock of the investee is held by the investor. Current financial reporting standards allow firms to elect to use fair value for any investment in equity shares including those where the equity method would otherwise apply. However, the option, once taken, is irrevocable. After 2008, an entity can make the election for fair value treatment only upon acquisition of the equity shares. Dividends received and changes in fair value over time are recognized as income. I. Accounting for an investment: the equity method A. The investment account is adjusted by the investor to reflect all changes in the equity of the investee company. B. Income is accrued by the investor as soon as it is...
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...Work Plan for the Consideration of Incorporating International Financial Reporting Standards into the Financial Reporting System for U.S. Issuers A Comparison of U.S. GAAP and IFRS A Securities and Exchange Commission Staff Paper November 16, 2011 OFFICE OF THE CHIEF ACCOUNTANT UNITED STATES SECURITIES AND EXCHANGE COMMISSION This is a paper by the Staff of the U.S. Securities and Exchange Commission. The Commission has expressed no view regarding the analysis, findings, or conclusions contained herein. TABLE OF CONTENTS I. II. Introduction..........................................................................................................................1 Methodology ........................................................................................................................2 A. Scope of the Analysis...............................................................................................2 B. MoU and Other Joint Projects..................................................................................3 C. SEC Rules and Regulations .....................................................................................8 D. General Observations and Clarifications .................................................................8 Comparison of Requirements ............................................................................................11 A. Accounting Changes and Error Corrections...
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...) IFRS for SMEs ® International Financial Reporting Standard (IFRS®) for Small and Medium-sized Entities (SMEs) International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs) The International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs) is issued by the International Accounting Standards Board (IASB), 30 Cannon Street, London EC4M 6XH, United Kingdom. Tel: +44 (0)20 7246 6410 Fax: +44 (0)20 7246 6411 Email: iasb@iasb.org Web: www.iasb.org The International Accounting Standards Committee Foundation (IASCF), the authors and the publishers do not accept responsibility for loss caused to any person who acts or refrains from acting in reliance on the material in this publication, whether such loss is caused by negligence or otherwise. The IFRS for SMEs and its accompanying documents are published in three parts: ISBN for this part: 978-1-907026-17-1 ISBN for complete publication (three parts): 978-1-907026-16-4 Copyright © 2009 IASCF All rights reserved. No part of this publication may be translated, reprinted or reproduced or utilised in any form either in whole or in part or by any electronic, mechanical or other means, now known or hereafter invented, including photocopying and recording, or in any information storage and retrieval system, without prior permission in writing from the IASCF. International Financial Reporting Standards (including International Accounting Standards...
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...examination answer sheet INVALID. Use PENCIL NO.2 only. GOODLUCK! 1. 1. Choose the incorrect statement. a. The objective of external financial statements is to communicate the economic effects of completed transactions and other events in the entity. b. General purpose financial statements were developed primarily because all outside users have the same information needs. c. The double-entry system of accounting has been used for centuries. d. The practice of accounting requires considerable professional judgment. 2. Which statement is incorrect regarding Philippine Financial Reporting Standards (PFRSs)? a. PFRSs set out recognition, measurement, presentation and disclosure requirements dealing with transactions and events that are important in general purpose financial statements. b. PFRSs are based on the Framework, which addresses the concepts underlying the information presented in general purpose financial statements. c. PFRSs are designed to apply to the general purpose financial statements and other financial reporting of all profit-oriented entities. d. PFRSs are designed to apply to not-for-profit activities in the private sector. 3. Which of the following statements regarding the conceptual framework is correct? a. The...
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...MFRS 133 Malaysian Financial Reporting Standard 133 Earnings per Share This version includes amendments resulting from MFRSs with effective dates no later than 1 January 2012. Amendments with an effective date later than 1 January 2012 MFRS 133 has been amended by: MFRS 10 Consolidated Financial Statements* MFRS 11 Joint Arrangements* MFRS 13 Fair Value Measurement* Presentation of Items of Other Comprehensive Income (Amendments to MFRS 101)† As those amendments have an effective date after 1 January 2012 they are not included in this edition. * † effective date 1 January 2013 effective date 1 July 2012 907 MFRS 133 CONTENTS paragraphs Preface INTRODUCTION IN1–IN3 MALAYSIAN FINANCIAL REPORTING STANDARD 133 EARNINGS PER SHARE OBJECTIVE 1 SCOPE 2–4A DEFINITIONS 5–8 MEASUREMENT 9–63 Basic earnings per share 9–29 Earnings 12–18 Shares 19–29 Diluted earnings per share 30–63 Earnings 33–35 Shares 36–40 Dilutive potential ordinary shares 41–63 Options, warrants and their equivalents 45–48 Convertible instruments 49–51 Contingently issuable shares 52–57 Contracts that may be settled in ordinary shares or cash 58–61 Purchased options 62 Written put options 63 RETROSPECTIVE ADJUSTMENTS 64–65 PRESENTATION 66–69 DISCLOSURE 70–73A EFFECTIVE DATE 74–74A WITHDRAWAL OF OTHER PRONOUNCEMENTS APPENDIX A 908 Application...
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...Glossary Notes: Note 1: CICA Part I applies to publicly accountable enterprises, CICA Part II ASPE applies to private enterprises; CICA Part III ASNFPO applies to not-for-profit organizations. CICA Part IV ASPP applies to pension plans. For governments and government organizations, see under Public Sector Accounting (PSA) Handbook for details of what applies. Note 2: Part II and V Definitions may not be identical — check the CICA Handbook — Accounting. A B C D E F G H I J K L M N O P Q R S T U V W X Y Z Abnormal earnings Also referred to as unexpected earnings. Differences between the expected value of earnings and the actual realized. Absorption costing Absorption costing is a method of assigning costs to inventory. It includes fixed overhead costs in addition to variable overhead costs added to direct materials and direct labour to calculate unit cost. Accelerated amortization Accelerated amortization is a method of allocating the cost of an asset in which the annual amortization amounts are larger in an asset’s early years and decrease over time. An example of accelerated amortization would be the double-declining balance method. Access controls Procedures designed to restrict access to online terminal devices, programs, and data. Access controls consist of ”user authentication” and ”user authorization.” Account Place within an accounting system where the increases and decreases in a specific asset, liability, owner’s equity, revenue, or expense are recorded...
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...Glossary Notes: Note 1: CPA Canada Handbook Part I applies to publicly accountable enterprises, CPA Canada Handbook Part II ASPE applies to private enterprises; CPA Canada Handbook Part III ASNFPO applies to not-for-profit organizations. CPA Canada Handbook Part IV ASPP applies to pension plans. For governments and government organizations, see under Public Sector Accounting (PSA) Handbook for details of what applies. Note 2: Part II and V Definitions may not be identical — check the CPA Canada Handbook – Accounting. A B C D E F G H I J K L M N O P Q R S T U V W X Y Z Abnormal earnings Also referred to as unexpected earnings. Differences between the expected value of earnings and the actual realized. Absorption costing Absorption costing is a method of assigning costs to inventory. It includes fixed overhead costs in addition to variable overhead costs added to direct materials and direct labour to calculate unit cost. Accelerated depreciation Accelerated depreciation is a method of allocating the cost of an asset in which the annual depreciation amounts are larger in an asset’s early years and decrease over time. An example of accelerated depreciation would be the double-declining balance method. Access controls Procedures designed to restrict access to online terminal devices, programs, and data. Access controls consist of ”user authentication” and ”user authorization.” Account Place within an accounting system where the increases and decreases in a specific...
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