The FASB has published FASB Statement No. 123 (revised 2004), Share-Based Payment, which requires that the compensation cost relating to stock options, stock appreciation rights, restricted stock or units, employee stock purchase plans and other share-based payment transactions, measured based on the fair value, be recognized in financial statements. FAS 123(R) replaces FAS 123, Accounting for Stock-Based Compensation, and supersedes APB 25, Accounting for Stock Issued to Employees.

When Must Companies Begin Expensing?

• Larger Public Companies. Public companies that are not small business issuers must apply FAS 123(R) as of the first interim or annual reporting period that begins after June 15, 2005.
• Small Business Issuers. Small business issuers must apply FAS 123(R) in the first interim or annual reporting period that begins after December 15, 2005.
• Private Companies. Private companies must apply FAS 123(R) in the first annual reporting period after December 15, 2005, which will provide these companies a little extra time.

FAS 123(R) Provides Three Alternative Transition Methods

As anticipated, FAS 123(R) provides transition guidance that includes three alternative methods. Companies can elect to:

• not restate results for periods prior to the effective date of FAS 123(R);
• restate results for prior quarters in the fiscal year of adoption of FAS 123(R) to reflect the FAS 123 pro forma compensation cost; or
• restate results for prior periods, whether annual or quarterly, to reflect the FAS 123 pro forma compensation cost.

Each company must select a transition approach to use based on the particular effect each will have on its income statement.

Additional Information

The full text of FAS 123(R) and its appendices is available on the FASB's website at http://www.fasb.org/pdf/fas123r.pdf. You can find discussion of other recent laws, regulations and rule proposals of interest to public companies on our website.