Proposed statement of position : employers' accounting for employee stock ownership plans ;Employers' accounting for employee stock ownership plans; Exposure draft (American Institute of Certified Public Accountants), 1992, Dec. 21
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This proposed statement of position (SOP) would supersede AICPA SOP 76-3, Accounting Practices for Certain Employee Stock Ownership Plans, which was issued in December 1976. Since SOP 76-3 was issued, the reporting of transactions between employers and employee stock ownership plans (ESOPs) has become a source of accounting controversy. The importance of employers' financial reporting for ESOPs grew with increases in the number of plans and the amounts of stock held by the plans over the past decade. Furthermore, there have been significant changes in the tax and regulatory environment surrounding ESOPs and the structure and purpose of ESOPs have become more complex and diverse. Those developments called attention to the limitations of SOP 76-3, and therefore, the Accounting Standards Executive Committee (AcSEC) initiated a project to reconsider SOP 76-3, to consider ESOP reporting issues that are not specifically addressed in the accounting literature, and to develop principles for employers' financial reporting of ESOP transactions that provide more relevant and useful information. This proposed SOP, which provides guidance on employers' accounting for ESOPs, is a result of that project. It would apply to all employers with ESOPs, both leveraged and nonleveraged. The proposed SOP would bring about significant changes in the way employers report transactions with leveraged ESOPs. It recommends the following: 1. Employers would report the issuance of new shares or the sale of treasury shares to the ESOP when the issuance or sale occurs and would report a corresponding charge to unearned compensation, a contra-equity account. 2. For ESOP shares committed to be released to compensate employees directly, employers would recognize compensation cost equal to the fair value of the shares committed to be released. 3. For ESOP shares committed to be released to settle or fund liabilities for other employee benefits, such as an employer's match of employees' 401 (k) contributions or an employer's obligation under a formula profit-sharing plan, employers would report satisfaction of the liabilities when the shares are committed to be released to settle the liabilities. Compensation cost and liabilities associated with providing such benefits to employees would be recognized the way they would be if an ESOP had not been used to fund the benefit. 4. For ESOP shares committed to be released to replace dividends on allocated shares used for debt service, employers would report satisfaction of the liability to pay dividends when the shares are committed to be released for that purpose. 5. Employers would credit unearned compensation as the shares are committed to be released based on the cost of the shares to the ESOP. The difference between the amount reported based on the fair value of the shares and the amount credited to unearned compensation would be charged or credited to additional paid-in capital. 6. Employers would charge dividends on allocated ESOP shares to retained earnings. Employers would report dividends on unallocated shares as a reduction of debt or accrued interest or as compensation cost, depending on whether the dividends are used for debt service or paid to participants. 7. Employers would report redemptions of ESOP shares as purchases of treasury stock. 8. Employers would report loans from outside lenders to ESOPs as liabilities on their balance sheets and would report interest cost on the debt. Employers with internally leveraged ESOPs would not report the loan receivable from the ESOP as an asset and would not report the ESOP's debt as a liability. 9. For earnings-per-share computations, ESOP shares that have been committed to be released would be considered outstanding. ESOP shares that have not been committed to be released would not be considered outstanding. The proposed SOP, although it would not change the existing accounting for nonleveraged ESOPs, contains guidance for nonleveraged ESOPs. The proposed SOP also addresses issues concerning pension reversion ESOPs, ESOPs that hold convertible preferred stock, and terminations, as well as issues related to accounting for income taxes. The proposed SOP would be effective for fiscal years ending after December 15,1993. Employers would be required to apply the provisions of the proposed SOP to shares purchased by ESOPs after September 23, 1992, that have not been committed to be released as of the beginning of the year of adoption. Employers would be permitted, but not required, to apply the provisions of the proposed SOP to shares purchased by ESOPs on or before September 23, 1992, that have not been committed to be released as of the beginning of the year of adoption. However, all employers with ESOPs would be required to make the applicable disclosures in paragraph 54 of the proposed SOP.
Employee stock options -- United States -- Accounting; Corporations -- United States -- Accounting
Accounting | Taxation
American Institute of Certified Public Accountants. Accounting Standards Executive Committee, "Proposed statement of position : employers' accounting for employee stock ownership plans ;Employers' accounting for employee stock ownership plans; Exposure draft (American Institute of Certified Public Accountants), 1992, Dec. 21" (1992). Statements of Position. 577.