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Shared Based Payments

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MEMORANDUM
TO: Senior Accounting
FROM: Staff Accountant
DATE: June 29, 2015
SUBJECT: 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 transactions which are equity settled, IFRS No. 2 measurement requires the entity to measure the goods or services received against the increase in equity, using the fair value of the goods or services received. Cash-settled transactions require the entity to measure the goods or costs of services against the liability incurred, again using the fair market value. Lastly, some transactions allow the entity or the supplier an option to complete the transaction with cash or equity, in this case the entity must record a cash transaction if the entity has incurred a liability. If no liability are recorded, the entity is to account for the equity-transaction. Part of IFRS No. 2 further requires the reporting entity to clarify its transactions by disclosing the nature of the arrangements in the reporting period, the fair value of the goods or services received as well as how the fair value was calculated. (Schroeder, Clark, & Cathey, 2011)
Special Purpose Entities (SPE)
An SPE, or Special Purpose Entity is an entity such as a partnership that is established by a corporation to transfer assets in order to avoid risk. “By using SPEs such as limited partnerships with outside parties, a company is permitted to increase leverage and ROA without having to report debt on its balance sheet.” (Thomas, 2002)
On June 12, 2009 FASB issued statements 166 and 167 that changed the way entities report on securitization and special purpose entities.
Statement No. 166 is a revision of Statement No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, and will require more information about transfers of financial assets, including securitization transactions, and where companies have continuing exposure to the risks related to transferred financial assets.” (Release of Statement, 2009) “It eliminates the concept of a “qualifying special-purpose entity,” changes the requirements for derecognizing financial assets, and requires additional disclosures.” (Release of Statement, 2009)
Statement No. 167 is a revision of FASB Interpretation No. 46(R), “Consolidation of Variable Interest Entities, and changes how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated.” (Release of Statement, 2009)
The changes in these standards “eliminate existing exceptions, strengthen the standards relating to securitizations and special-purpose entities, and enhance disclosure requirements.” (Release of Statement, 2009) They also provided better clarification for investors about a company’s activities and risks pertaining to Special Purpose Entities (SPE). Under these revision both will require numerous new disclosures. It is also important to understand that in Statement 167, companies are required to “provide additional disclosures about its involvement with variable interest entities and any significant changes in risk exposure due to that involvement.” (Release of Statement, 2009) In addition, companies will now be required to “disclose how its involvement with a variable interest entity affects the company’s financial statements.” (Release of Statement, 2009) Lastly, Statement 166, will allow the financial personal for enhanced information reported. These reports will provide clarification on how “transfers of financial assets and a company’s continuing involvement in transferred financial assets.” (Release of Statement, 2009)
Conclusion
In conclusion, the enter workings of the shared-Based Payment Reporting and Special Purpose Entities (SPE) very similar to each other. For further clarification to in regards to shared-Based Payment Reporting and Special Purpose Entities (SPE) can be located on the Financial Accounting Standards Board (FASB) websites listed below. We have also included additional website for additional information in regard to both of these items. We strongly advise all Staff Accountants with our firm continuously visit these sites to be as informed as possible for our clients benefit.

Reference
Exposure Documents. (2015). Share-Based Payments. Retrieved from http://www.fasb.org/draft/ed_intropg_share-based_payment.shtml

Release of Statement (June 12, 2009). Statement 166 and 167 Retrieved from www.fasb.org

Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2011). Financial accounting theory and analysis (10th ed.).Retrieved from https://newclassroom3.phoenix.edu/Classroom/#/contextid/OSIRIS:48811875/context/co/view/activityDetails/activity/b2413599-c5bf-4144-94af-6888feb3f90e/expanded/False

Thomas, C. William. (2002). The Rise and Fall of Enron. Retrieved from www.thejournalofaccountancy.com

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