Financial Accounting Series - FASB

Statement of Financial Accounting Standards No. 123 (revised 2004) Share-Based Payment NO. 263-C DECEMBER 2004 Financial Accounting Series Financial Accounting Standards Board of the Financial Accounting Foundation For additional copies of this Statement and information on applicable prices and discount rates contact: Order Department Financial Accounting Standards Board 401 Merritt 7 PO Box 5116 Norwalk, Connecticut 06856-5116 Please ask for our Product Code No. S123R. FINANCIAL ACCOUNTING SERIES (ISSN 0885-9051) is published monthly by the Financial Accounting Foundation. Periodicals—postage paid at Norwalk, CT and at additional mailing offices. The full subscription rate is $175 per year. POSTMASTER: Send address changes to Financial Accounting Standards Board, 401 Merritt 7, PO Box 5116, Norwalk, CT 06856-5116. Summary This Statement is a revision

of FASB Statement No. 123, Accounting for Stock- Based Compensation. This Statement supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance. Scope of This Statement This Statement establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also 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 or that may be settled by the issuance of those equity instruments. This Statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. This Statement does not change the accounting guidance for share-based payment transactions with parties other than employees provided in Statement 123 as originally issued and EITF Issue No. 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services.” This Statement does not address the accounting for employee share ownership plans, which are subject to AICPA Statement of Posi- tion 93-6, Employers’ Accounting for Employee Stock Ownership Plans. Reasons for Issuing This Statement The principal reasons for issuing this Statement are: a. Addressing concerns of users and others. Users of financial statements, including institutional and individual investors, as well as many other parties expressed to the FASB their concerns that using Opinion 25’s intrinsic value method results in financial statements that do not faithfully represent the economic transactions affecting the issuer, namely, the receipt and consumption of employee services in exchange for equity instruments. Financial statements that do not faithfully represent those economic transactions can distort the issuer’s reported financial condition and results of operations, which can lead to the inappropriate allocation of resources in the capital markets. Part of the FASB’s mission is to improve standards of financial accounting for the benefit of users of financial information. This State- ment addresses users’ and other parties’ concerns by requiring an entity to recognize the cost of employee services received in share-based payment transactions, there- by reflecting the economic consequences of those transactions in the financial statements. i b. Improving the comparability of reported financial information by eliminating alternative accounting methods. Over the last few years, approximately 750 public companies have voluntarily adopted or announced their intention to adopt State- ment 123’s fair-value-based method of accounting for share-based...

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