Auditing Public Company


As requested, below is a brief summary of accounting issues surrounding share-based and special purpose entity reporting.

A share-based payment is a transaction whereby Team A Company receives something of value in exchange for an equity instrument or by incurring a liability for the value of the acquired goods/services.[i]   GAAP Codification 718 – Compensation – Stock Compensation requires that cost relating to share-based transactions be recognized in the financial statements.   These costs must be measured on the fair value of the instrument issued.   The instruments typically found are share options, restricted share plans, performance based awards, share appreciation rights and employee share purchase plans.[ii]

To be consistent with Codification 718, Team A Company must record a debit entry to the expense when payment does not represent an asset.   In keeping with the matching principle, the expense should be recorded as the benefits are received.   The exception is when there is a vesting period involved.   In such cases, the expense should be recorded in a pro-rata manor over the vesting period.[iii]   As a general rule, we should make sure that Team A Company has recorded expense related to equity-settled share based payments that equals the appropriate pro-rata amount of the instrument plus any expenses directly related to the financial reporting period (utilizing fair market value).   If the fair value cannot be reliably measured, IFRS 2 permits the use of intrinsic value, which must be remeasured at each report date until settlement.[iv]

Team A Company is also required to disclose the nature and extent of share-based payment arrangement that exist during the reporting period, regardless of when they were consummated.   Disclosure must also include a description of the determination of the fair value and the effect the transactions had on the profit/loss for the reported periods.[v]

To be in accordance with SFAS 123R, the...