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The SEC has a longstanding commitment to the goal of a single set of high-quality global accounting standards. SEC Chairman Mary Schapiro commented that supporting the development of a single set of high-quality accounting standards is, in many respects, "only the beginning of the discussion, not the end." Incorporating International Financial Reporting Standards (IFRS) into the U.S. financial reporting system would involve a "significant undertaking" that includes consideration and deliberation of whether such a change is in the best interest of U.S. investors and markets, according to Schapiro. While the SEC does not yet have all the information necessary to make a decision regarding IFRS now, Schapiro says that it remains "on a steady path" to be in a position to make such a determination.
This article provides a comparison between the guidance under U.S. GAAP and IFRS for stock compensation accounting.
Stock Compensation
The guidance for stock compensation, Accounting Standards Codification (ASC) 718, CompensatioHr-Stock Compensation, and IFRS 2, Share-based Payment, are largely converged standards. The general framework is common to both GAAP and IFRS:
* Require a fair value-based approach in accounting for stock compensation.
* Apply to transactions with employees and nonemployees.
* Require that the fair value of stocks to be measured based on market price, if available, or be estimated using an option pricing model, such as Black-Scholes-Merton.
* Require a similar treatment for modification and settlement of awards.
* Require similar disclosures in quarterly and annual financial reports.
There are, however, significant differences between the two standards, and such differences have made the transition from one standard to the other rather cumbersome.
Awards with Service Conditions and Graded Vesting
ASC 718 requires that awards with graded vesting and performance or market conditions use the graded-vesting attribution approach, but it also permits companies to make an accounting policy election regarding the attribution method for awards with service conditions and graded- vesting features. Companies can make an election to recognize compensation costs for awards containing only service conditions and graded vesting either as if the award was multiple awards (graded- vesting attribution method) or on a straight-line basis for the entire award (straight-line attribution method), regardless of the method used to measure the fair value of the awards, either as a whole...