FASB Interpretation No. 44

In March 2000, FASB Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation (FASB Int. 44), was issued and is effective from July 2000.

Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APBO 25) has been the controlling accounting standard. Businesses have been structuring their option plans to avoid reporting compensation expense under APBO 25 (read more about this rule).

Contrary to its original intention of reporting the compensation expense in the income statement when options were issued, FASB Statement No. 123, Accounting for Stock-Based Compensation, requires expanded footnote disclosures in lieu of reporting compensation expense on the financial statements. In addition, FASB 123 permits companies to continue to apply APBO 25, and most companies have done so.

FASB Int. 44 addresses (in a question and answer format) the issues not convered by APBO 25 and FASB 123. These issues are:

• criteria for noncompensatory plans
• the definition of an employee
• plans with a look-back option
• parent stocks issued to subsidiaries
• grant date
• deferred taxes
• cash bonus plan
• cash paid to settle options
• modifications to plan life
• modifications to exercise price or shares

Web site created in 1998 and operated by: A. Sungil Noh, CPA