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Accounting treatment of incentive stock options listed companies

Author: ShiRong ChuChangXiong From: www.yourpaper.net Posted: 2010-03-20 11:53:44 Read:
[Abstract] article analyzed theoretically accounting recognition of incentive stock options and the accounting measurement, and analysis from the practice of China's listed companies equity incentive equity incentive should draw attention to the accounting treatment.
[Keywords] equity incentive stock option shares to pay the accounting treatment
Equity incentive is the standard stock of the Company, its directors, supervisors, senior management and other employees of long-term incentive of listed companies. The essence of incentive stock options based on the stock price as an evaluation of the performance of the company based on stock appreciation spreads as a reward for operators, which will operate the long-term compensation and corporate operating results linked, managers take optimal strategy maximize their own interests at the same time, tends to maximize the interests of shareholders, and thus bound by the short-term behavior of the managers, to prevent the risk of moral hazard, and reduce the cost of supervision of the owner, to effectively solve the principal-agent problem. Due to the equity incentive largely solved agent incentive constraint compatibility issues, therefore, in the United States and other Western countries has been widely used, and achieved great success in practice. According to statistics, the largest industrial enterprises in the global ranking of 500, at least 89% of the operators to implement equity incentive plan based stock options. However, due to the complexity of the equity incentive tool itself, how its accounting treatment, there has been very controversial, so it is necessary to discuss in depth.

I. Equity Incentive Overview of China's listed companies

Including employee stock ownership plan, our equity incentive pilot began in the last century, in the form of equity incentive management holdings (including the performance of the stock, the management stock option plans, phantom stock plans, stock appreciation rights plan, deferred payments, etc.), management buyouts and other forms. Split share structure reform began after the equity incentive of listed companies has been rapid development, in order to standardize the behavior of listed companies, equity incentive, January 1, 2006, the China Securities Regulatory Commission promulgated listed company equity incentive management approach (Trial) "(hereinafter referred to as the "Regulations"), the State Council, the SASAC issued a "state-controlled listed companies (offshore) implementation of equity incentive pilot scheme", "state-controlled listed companies (domestic) for the implementation of equity incentive pilot scheme", this series of regulations promulgated and implemented and subsequently unveiled tax, accounting and other provisions not only to establish an equity of listed companies (including state-owned holding) equity incentive from compliance to be clear, and the details of the implementation of the principles and operational methods to regulate them, a strong impetus to the listed companies incentive system.
In accordance with the provisions of the "management approach", the listed company equity incentive, restricted stock, stock options, and legal and administrative regulations allow otherwise. Taken from the already announced equity incentive program and the implementation point of view, the main incentive restricted stock and stock options the way, 80% of the stock options. This article is mainly to the accounting treatment of equity incentive stock options to explore.

Second, incentive stock options accounting recognition

The confirmation is a matter officially recorded as assets, liabilities, income and expenses and are included in the financial statements. For equity incentive whether in the financial statements must be confirmed by the accounting profession does not exist much controversy, controversial mainly involves two issues: First, the equity incentive as equity or as liabilities in the balance sheet in the column part of the shows; equity incentive costs, or as a distribution of profits, that is, whether to confirm the cost of equity incentive.
From the definition of a liability, liabilities existing obligations from past transactions or events, the settlement of this obligation will be caused by the outflow of resources embodying economic benefits of enterprises. According to the definition to determine, first of all, stock options not past transactions or events formed; Second, the obligations of companies issue stock or some incentive target whether the exercise depends on the level of future stock price, so it does does not meet the definition of a liability, not as a liability in the balance sheet the appropriate as equity. China's newly enacted "Accounting Standards for Business Enterprises No. 11 - Share-based Payment" as "capital surplus - Other capital surplus.
Equity incentive if you want to confirm there are two points of view: the costs associated cost concept and profit distribution concept. Cost concept stock options, the enterprise will not produce cash outflow, but valuable stock options, the value of the services provided by its value system accepted the incentive target to accept the performance incentive target for enterprise resource consumption used, in line with the definition of the cost. And a cash payment of remuneration, stock options paid to the pay incentive target, therefore, should be recognized as an expense of the enterprise. Profit distribution concept that incentive target is to make equity incentive to participate in the allocation of the remaining business, through the grant of stock options, the growth in the value of the incentive target the interests of the enterprise itself linked, and establish long-term incentives, therefore, equity The incentives are an important way of share incentive objects involved in the enterprise residual claim.
U.S. Financial Accounting Standards Board (FASB) revised Accounting Standard No. 2 "was released in 2004 stock-based payment and the International Accounting Standards Committee (IASB) International Financial Reporting Standards No. 11 - Equity-based reimbursement" provide for the enterprises in equity incentives should be recognized as the related costs are charged to the operating profit. China's newly enacted 11 guidelines adopted international practices, and regulations to "credited to the related costs and expenses, the corresponding increase in capital reserve". The specific accounting treatment: confirm the date and the subsequent accounting periods debit "management costs" subjects, credited "stock options" subjects; line Quanshi debit "stock options" subjects, credited to "equity" in the initial accounting capital reserve - share premium account.

Third, incentive stock options accounting measurement

Incentive stock options accounting measurement to solve measurement attributes and measurement date. In stock options accounting measurement attributes, the countries involved in the Accounting Standards Board of the historical cost method, the intrinsic value method and fair value method.
Historical cost is the exchange price of the assets in their access to the historical cost method is mainly for stock repurchase exercise stock sources. The difference between the exercise price and the stock repurchase price is recognized as income or expense seem to have some truth, but this method is not suitable for the enterprise held its own stock, because it does not have the characteristics of the assets. The company's stock is the interests of the shareholders, the stock repurchase should be used as the return on shareholders' investment, therefore, the International Accounting Standards Board that historical cost is chosen inappropriate.
The intrinsic value of the stock options is a part of the grant date of the stock market price is higher than the exercise price, exercise price greater than or equal to the grant date stock price and its intrinsic value is zero, which means that enterprises are not required to confirm any costs, This clearly does not reflect the true value of the stock options, it is unreasonable. The intrinsic value method is relatively simple, but it ignores the time value of the stock options.
The fair value is familiar with the situation in a fair deal, willing parties to the asset swap or the amount of the liability is settled. The traditional accounting system rarely use fair value as the measurement instruments, with the development of measurement technology, the fair value of becoming the metering means of many transactions, especially, has been widely used in the measurement of financial instruments. The International Accounting Standards Board and the U.S. Financial Accounting Standards Board require measurement and accounting for the value of the stock options using the fair value method. The fair value method has broad applicability, applicable to various forms of incentive stock options accounting measurement. Measured at fair value method not only allows the measurement of the stock options and other financial instruments to unify, to avoid confusion in the accounting treatment; fully taken into account the time value of the fair value method reflects the true value of the stock options, to some extent reduce the man-made the possibility of manipulation, the financial statements have relevance any point in time.
Accounting measurement of the equity incentive Another key issue is the choice of measurement date, there is a great difference because of the different time points are calculated fair value. In the stock option plan related to the choice of measurement date to the date of the grant, the grant date, the vesting date, the exercise date and the maturity date.
View shall exercise date as the measurement date, the only date to know the number of measuring whether the object of the exercise, the exercise and the amount of the payment, to avoid a lot of uncertainty. Measured at the exercise date and maturity are measured are actually stock options as a liability rather than an equity deal with, because only the liabilities at the balance sheet date to the last measurement, therefore, to the exercise date and the maturity date The measure is inappropriate.
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