By: E&P Staff It's widely expected that companies will have to recognize the cost associated with stock-based compensation as soon as the early part of 2005, according to a report released by Goldman Sachs.
The change in accounting methods, suggested by the Financial Accounting Standards Board, is currently in draft form but it's likely the board will approve it sometime after the June 20, 2004, comment period deadline. The Exposure Draft "calls for stock-based compensation to be measured based on fair value on the grant date, and for this cost to be recognized over the required service period (most often the vesting period)," said the report.
The draft recommends two different ways to measure value, "lattice" and "closed-form model." The lattice method takes an employee's expected exercise and expected post-vesting employment into account. The closed-form model utilizes a weighted-average expected option term.
The investment firm says that adopting such standards will improve the comparability of financial reporting and that some companies like the Washington Post Co. have already embraced this form of reporting. The International Accounting Standards Board (IASB) recommended a similar draft to that of the FASB.
There is a drawback to the difficulty in estimating the exact cost of stock-based compensation. Even so, Goldman Sachs thinks that if the draft is adopted, it will have no dramatic impact on publishing companies.
Comments
No comments on this item Please log in to comment by clicking here