SFAS 123(R) “Share-Based Payment”, which revises SFAS 123, “Accounting for Stock-Based Compensation” and supersedes Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees”, and its related implementation guidance, establishes standards for the accounting for transactions where an entity exchanges its equity instruments for goods or services. It addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments.
Adopting SFAS 123(R) using the modified prospective transition method requires the application of the accounting standard as of the first day of a company’s fiscal year. With the modified prospective transition method, a company’s consolidated financial statements for prior periods are not restated to reflect, and do not include, the impact of SFAS 123(R).
The focus of SFAS 123(R) is the accounting for transactions in which an entity obtains employee services in share-based payment transactions, and where the measurement of the cost of employee services received in exchange for an award of equity instruments is based on the grant-date fair value of the award.
Cost recognized over the period during which an employee is required to provide service in exchange for the award, and the requisite service period are estimated using option-pricing models adjusted for unique characteristics of the instruments.
If an equity award is modified after the grant date, incremental compensation cost is recognized in an amount equal to the excess of the fair value of the modified award over the fair value of the original award immediately before the modification.
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