Reporting for Share-Based Payment and Special Purpose Entity

In: Business and Management

Submitted By morningglory0218
Words 1048
Pages 5
Memorandum
To: Kelly Stevens, Senior Auditor
CC: Rebecca Kime
From:
Date: 4/28/2014
Re: Reporting for Share-Based Payment and Special Purpose Entity
Purpose
We compiled the information presented to address concerns surrounding the audit of McDowells, a publicly traded company. The memo explores both share-based payment and special purpose entities. It details the proper accounting methods for each item. Finally, we offer suggestions and guidelines to ensure McDowells complies with GAAP on these matters.
CONFIDENTIAL
Share-based payment and SPE
The transactions related to the share based payment are defined as the proceedings in which any bodies attain or get the products or services by fulfilling the two vital requirements i.e. equity instruments of the entity or cash. In this transaction, the total sum is based on the entity's shares price. The financial statement on accounting for the share-based payment will furnish the full or more reliable information to the stakeholders such as investors, lenders or other users of financial statements. This will enable them to make an appropriate judgment based on the information given and also recognize the compensation cost referring to share-based payment dealings easily.

This reporting portrays that in the financial statements making out the actual cost related to the share-based payments amends the comparability, reliability, and relevancy of that critical and valuable financial information of the company. It assists different users of financial information with understanding the dealings related to the economic conditions that affect a company and also helps in taking decisions of the resource allocation. The share based payment reporting for the company covers a broad range of share-based payments or recompense agreements that include the awards based on performance, limited share plans, share appreciation…...

Similar Documents

Shared Based Payment Reporting

...Share Based Payment Reporting El Shared Based Payment Reporting (SBPR) es el producto del estándar numero 123 del Financial Accounting Standard Board (FASB), antes la opinión APB No. 25 – Accounting for Stock Issued to Employees. Este estándar busca uniformar la información que las organizaciones ofrecen a los inversionistas y personas de interés sobre sus intercambios de equity instruments para bienes y servicios, cuando esta incurre en una deuda para adquirir un bien o servicio basados en el valor del mercado de los equity instruments de la organización o establecidos por los emisores de dichos equity instruments. Igualmente, para identificar los servicios de capital humano que incurren las organizaciones en la forma de SBPR (FASB, 2012). Las razones principales para el nacimiento de este estándar estriban en la preocupación del mundo contable sobre la APB No. 25 la cual se basaba en métodos valorativos superficiales en los estados de situación. Estos no brindaban al lector números confiables sobre las transacciones económicas de la organización que afectaban el recibo y consumo de los servicios de capital humano en el intercambio de equity instruments. Igualmente, otra de las razones era la necesidad de que se mejorara los informes en cuanto a la comparabilidad, hacerlo mas simple, y que coexistiera con los estándares internacionales a través del International Financial Reporting Standard (IFRS) 2. Special Purpose Entities Desde los anos 70, las Entidades de......

Words: 507 - Pages: 3

Is the Rdr the Future in Differential Reporting for for-Profit Entities?

...differential reporting for for-profit entities? By Scott Sharp In March 2012, the External Reporting Board (XRB) proposed a number of changes to the New Zealand Accounting Framework, which enabled them to come to a decision in terms of differential reporting for for-profit entities. The XRB have chosen to align New Zealand with Australia and implement NZ IFRS Reduced Disclosure Regime (RDR). Is this the right decision moving forward in differential reporting? There is to be a four-tier structure with different reporting standards applying to each tier, however the bottom two tier are only transitional which will be removed according to legislative changes enforced. This allows us to focus on tier 2 for differential reporting which in order to qualify for the new RDR approach entities must be not publicly accountable or non-large public sector entities which elect to be in tier 2. Entities that are publicly accountable either trade in the capital markets and/or holds assets for a broad group of outsiders as one of its primary businesses. For a for-profit public sector entity to be considered “large” and thus placed in tier 1, it must have expenses exceeding $30 million. Under the current approach to differential reporting that was issued in 1994, entities must; not be publicly accountable, have all of its owners as member of the governing body at the end of the reporting period, and be not large. The criteria for “large” is a little different being that entity must meet two...

Words: 1121 - Pages: 5

Variable Interest Entity Guideline

...www.pwc.com Guide to Accounting for Variable Interest Entities 2012 This publication has been prepared for general information on matters of interest only, and does not constitute professional advice on facts and circumstances specific to any person or entity. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication. The information contained in this material was not intended or written to be used, and cannot be used, for purposes of avoiding penalties or sanctions imposed by any government or other regulatory body. PricewaterhouseCoopers LLP, its members, employees and agents shall not be responsible for any loss sustained by any person or entity who relies on this publication. The content of this publication is based on information available as of May 31, 2012. Accordingly, certain aspects of this publication may be superseded as new guidance or interpretations emerge. Financial statement preparers and other users of this publication are therefore cautioned to stay abreast of and carefully evaluate subsequent authoritative and interpretive guidance that is issued. Portions of various FASB documents included in this work, copyright © by Financial Accounting Foundation 401 Merritt 7, Norwalk, CT 06856, are reproduced by permission. Dear Clients and Friends:......

Words: 101098 - Pages: 405

Special Purpose Vehicle

...Special purpose vehicle (SPV) is a legal entity – one of the financial structures, which is formed solely for a narrow, single, particular and specific purpose. Subsidiary might be a special form of SPV that exists before SPV, can stop liability, and have freedom of actions to do business like Philip Morris. Though, the difference between SPV and subsidiary is the full function in controlling the business. Subsidiary has completely full function while SPV does not do full range of business. In general, SPV is typically used by companies to isolate the firm from financial risk, to hide debt or ownership, to minimize bankruptcy risk and obscure relationships between different entities that are in fact related to each other. Commonly, because of the financial risk of a large project, the company will transfer assets to the SPV for management and narrow the risks by putting the entire firm at stake. Most importantly, SPV is formed as a separate company that theoretically has no connection with the sponsor. In order words, the owner of SPV legally must show no relationship to the main company. Furthermore, besides all of the reasons listed above of establishing a SPV, securitization is a must known, which is used to securitize loans. Asset securitization provides another way for a company to raise cash in the capital markets as well as transfer risk of default on high-risk debt, such as credit card receivables. If asset securitization could be a desirable way for a company to......

Words: 371 - Pages: 2

Classification of Students Based of Purposes to Study at Muic

...Classification of Students based on Purposes to study at MUIC ID 5680063 Mahidol University International College ICCM 104 Intermediate English Communication 1 Section 4 Dr. Anjana Warren Due Date: 8th November 2013 Classification of Students based on Purposes to study at MUIC Each student chooses to study at a particular college for different reasons. The universal reason is to acquire good education and a diploma at the end of the course. However, a university has lot to offer than just education. More often than not, university life is the time that defines ones future. It is a place people began to learn about themselves, their likes and dislikes. Thus students become particularly choosy when it comes to at what colleges they want spend years of their life and how such college can benefit their future. Other than the obvious educational purposes, this essay classifies students based on the reasons to study at Mahidol University International College. The three major reasons are; reputation, business connection and the university lifestyle. Indeed, a university’s reputation matters. Every year a huge number of students apply at MUIC because of its name. “What school do you go to?” The answer of that question can make people go “WOW” if the university you go to is a reputed school. Often times people blindly judge how qualified a person is by looking at what school he or she attains. Besides the quality of the education, a university can be highly regarded for...

Words: 1111 - Pages: 5

Special Purpose Entities

...These are often referred to as “related entity” transactions. Thus related entity transactions occur between parents and subsidiaries; between an entity and its owners; between an entity and other organizations in which it has part ownership, such as joint ventures; and between an entity and an assortment of special purpose entities, such as those designed to keep debt off the balance sheet. The accounting for related-entity transactions is straightforward: Since related-entity transactions are not “arms-length” transactions with outside parties, they need to be either (a) eliminated upon the development of consolidated financial statements, where applicable, or (b) fully disclosed. 14-12. Special Purpose Entities (SPE’s) can take many forms. Some are legitimate and are designed to accomplish specific tasks, e.g. perform research and development sufficient to bring a new product to market. Usually the SPEs are not owned by a company – although the company may have controlling interest. SPE’s attained notoriety because of their misuse by Enron. The CFO of Enron set up SPE’s specifically to (a) keep debt off the books of Enron, and (b) facilitate the recognition of income by Enron by transferring impaired assets to the SPE and recognizing gains on the sale of the assets. 14-27. c. 14-29. a. 14-40. a. The sale should be recorded including any gain or loss. All elements of the sale should be disclosed as a related entity transaction including: *......

Words: 3358 - Pages: 14

Special Purpose Entities

...February 17 Discussion Question Christopher Suto 1. What is a VIE? An entity (investee) in which the investor has obtained less than a majority-owned interest, according to the United States Financial Accounting Standards Board. A VIE refers to an entity (the investee) in which the investor holds a controlling interest that is not based on the majority of voting rights. As long as the investee is not the primary beneficiary then they do have to consolidate the company on their balance sheet. 2. How did we determine whether an entity need to be consolidated before FIN 45? Before FIN 45, “Many financial institutions were secondarily liable (without adequate disclosures) for many financial instruments held in special purpose entities” (Reinstein, 2012). The old consolidation framework used a common-sense approach, where a company should consolidate operations when they had a controlling ownership interest in another. Controlling abilities were tough to recognize and led to many unconsolidated statements. a. Explain how FIN 46 modified the guidance on VIEs. Originally FIN 46 focused only on special purpose entities and required a reporting enterprise to consolidate them. Soon FASB changed it where FIN 46 should apply to all entities where a VIE exists. Part of this decision involves more judgment now according to sec.gov. There is no bright line test and all facts and circumstances, qualitative and quantitative, should be considered. b. Explain how SFAS......

Words: 1186 - Pages: 5

Enron and Use of Special Purpose Entites

... Paper  Enron and the Special Purpose Entity. Use or Abuse? The Real Problem - The Real Focus Neal F. Newman Texas Wesleyan Law School This working paper is hosted by The Berkeley Electronic Press (bepress) and may not be commercially reproduced without the permission of the copyright holder. http://law.bepress.com/expresso/eps/1165 Copyright c 2006 by the author. Enron and the Special Purpose Entity. Use or Abuse? The Real Problem - The Real Focus Abstract In December of 2001, Enron Corporation filed for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code; one of the largest corporate bankruptcy filings at that time. When the investigations commenced and the tangled Enron web was unraveled, it was discovered that Enron had perpetrated a very sophisticated form of accounting fraud through its repeated use of what are referred to as Special Purpose Entities (“SPEs”). In their most basic forms, SPEs are business entities formed for the purpose of conducting a well specified activity such as construction of a gas pipeline, or collection of a specific group of accounts receivable. However, because of their complex nature, SPEs can be used to manipulate a corporation’s financial results, which was the primary use for which Enron employed the SPE structure. As a result, the investment and financial community has cast a dark cloud over the special purpose entity, depicting the SPE as an inherently evil structure whose only purpose is to defraud, obfuscate and......

Words: 25798 - Pages: 104

Aca Section 2551 Disproportionate Share Hospital Payments

... 1 March, 2015 Prof. Watson PHSC 2 ACA Section 2551 Disproportionate Share Hospital Payments The Federal Government provides supplemental funding to “disproportionate share” hospitals (DSH) which are hospitals that serve a large number of Medicaid, low-income, and uninsured patients. Under federal law, state Medicaid programs must take into account the situation of these hospitals and provide a supplemental payment to the normal reimbursement the hospital would receive under Medicaid for inpatient services. These supplemental payments, known as DSH payments, are determined by a hospital’s disproportionate patient percentage, which is the sum the Medicaid fraction and the Medicare and Supplemental Security Income fraction expressed as a percentage. In many cases, disproportionate share hospitals which are often times called “safety net” hospitals rely on this Federal compensation for financial stability. Which hospitals receive DSH compensation, and the amount of compensation is determined by each state. The affect of the passage of the Affordable Care Act on the uninsured population is significant. The Congressional Budget Office estimates that an expansion of public health care programs and the availability of new health insurance coverage options under the ACA will reduce the number of uninsured by 32 million. Keeping such expectations in mind, the ACA proposes policy for reducing DSH payments to reflect lower uncompensated care costs relative to increases in the......

Words: 1072 - Pages: 5

Shared Based Payments

...Shared-Based Payment Reporting and Special Purpose Entities (SPE) CC: Team members ______________________________________________________________________________ As an Accounting Firm it is very important that we follow the most recently changed or amended regulations and standards set by the Financial Accounting Standards Board (FASB). As of 2009 the Financial Accounting Standards Board (FASB) has made amendments to Shared-Based Payment Reporting and Special Purpose Entities. The amendments made were to Statements No. 123 and 95 which covers the Share-Based Payments and Statements No. 123 and 95; the FASB. Also revised, Statements No. 166 and 167 which pertains to Special Purpose Entities (SPE). Share-Based Payment Reporting In the process of an audit, it is important to review the accounting process in terms of how share-based payment is reported to Sensure the entity processes are in line with Generally Accepted Accounting Policies (GAAP). Share-based payment is a complex area to both report on and audit as almost every transaction is unique and referencing IFRS No.2 for the purpose of the audit is not always clearly defined. Defined, share-based payment is an arrangement in which an entity purchases goods or services in exchange for issuance of the entity’s equity instruments or cash payments based on the fair value of those equity instruments. IFRS No.2 has two defined two measurements for each possible share-based transaction; as it relates to share-based......

Words: 936 - Pages: 4

Fatma Reporting

...Name is required on this line; do not leave this line blank. 2 Business name/disregarded entity name, if different from above 3 Check appropriate box for federal tax classification; check only one of the following seven boxes: C Corporation S Corporation Partnership Trust/estate Individual/sole proprietor or single-member LLC Limited liability company. Enter the tax classification (C=C corporation, S=S corporation, P=partnership) ▶ Note. For a single-member LLC that is disregarded, do not check LLC; check the appropriate box in the line above for the tax classification of the single-member owner. 4 Exemptions (codes apply only to certain entities, not individuals; see instructions on page 3): Exempt payee code (if any) Exemption from FATCA reporting code (if any) (Applies to accounts maintained outside the U.S.) Other (see instructions) ▶ 5 Address (number, street, and apt. or suite no.) Requester’s name and address (optional) 6 City, state, and ZIP code 7 List account number(s) here (optional) Part I Taxpayer Identification Number (TIN) Enter your TIN in the appropriate box. The TIN provided must match the name given on line 1 to avoid backup withholding. For individuals, this is generally your social security number (SSN). However, for a resident alien, sole proprietor, or disregarded entity, see the Part I instructions on page 3. For other entities, it is your employer identification number (EIN). If you do not have a number,......

Words: 5814 - Pages: 24

Entities Overview

...Chapter 15 Entities Overview SOLUTIONS MANUAL Discussion Questions 1. [LO 1] What are the more common legal entities used for operating a business? How are these entities treated similarly and differently for state law purposes? Answer: Corporations, limited liability companies (LLCs), general and limited partnerships, and sole proprietorships. These entities differ in terms of the formalities that must be observed to create them, the legal rights and responsibilities conferred on them and their owners, and the tax rules that determine how they and their owners will be taxed. 2. [LO 1] How do business owners create legal entities? Is the process the same for all entities? If not, what are the differences? Answer: The process of creating legal entities differs by entity type. Business owners legally form corporations by filing articles of incorporation in the state of incorporation while business owners create limited liability companies by filing articles of organization in the state of organization. General partnerships may be formed either with or without written partnership agreements, and they typically can be formed without filing documents with the state. However, limited partnerships are usually organized by written agreement and must typically file a certificate of limited partnership to be recognized by the state. 3. [LO 1] What is an operating agreement for an LLC? Are operating agreements required for limited liability companies? If not...

Words: 12487 - Pages: 50

Share Base Reporting

...The current standard for reporting share-based payment transactions is the Statement of Financial Accounting Standards Number 123 revised which supersedes SFAS#123 and Accounting Principles Board opinion No. 25. SFAS#123R requires all publicly traded companies that issue stock options in place of wages to base the compensation cost on the fair value of the option when it is granted and to report the estimated compensation expense on their income statements. The standard allows companies to use either the fair value method created by Fisher Black and Scholes or the binomial lattice model. Both models use the current stock price, risk-free rate of interest, the strike price which is the price that the employee can buy the company stock at, the dividend yield, volatility of company’s stock price and the terms of the option as inputs (Schroeder, Clark, & Cathey, 2005). The fair value of the option granted to the employee will be evaluated annually to the end of the vesting period of the option. Non-public companies are also required to use the fair value method for pricing options, unless there is no way to measure that value. In its place private companies can use their industry sector index as a measure for valuing options. This standard was put into place because APB opinion #25 allowed companies not to report compensation cost at the granting of the option and the original SFAS#123 only required companies to disclose compensation cost in the footnotes and voluntarily in...

Words: 579 - Pages: 3

International Trade Payments with Special Respect to Bd

... Assignment On: International Trade Payment and Finance with Special Reference to Bangladesh Course Title: International Business Course Code- BUS 510 Prepared To: Mr. Ahsan Habib Faculty of BRAC Business School. Prepared By: Md. Mahabubur Rahaman Program- MBA ID- 10364038 Section - 1 Submission Date- 24th December, 2011. [pic] Introduction The international trade activities are grown day by day. This trend is attributable to the increased globalization of the world economies and the availability of trade payment and finance from the international banking community. Although banks also finance domestic trade, their role in financing international trade and payment system is more critical due to the additional complications involved. First, the exporter might question the importer’s ability to make payment. Second, even if the importer is creditworthy, the government might impose exchange controls that prevent payment to the exporter. Third, the importer might not trust the exporter to ship the goods ordered. Fourth, even if the exporter does ship the goods, trade barriers or time lags in international transportation might delay arrival time. Financial managers must recognize methods that they can use to make payment and finance international trade so that they can conduct exporting or importing in a manner that......

Words: 3393 - Pages: 14

Spe Shared Based Reporting

...Treatment for Share-Based Payment Reporting and Consolidation of Special Purpose Entity Week 6 Points to consider Memo on SPE and Share-based payments Evaluate Share-based payment reporting JJH->Share-based employee compensation awards are classified as either equity instruments or liability instruments. The measurement date for estimating the fair value of equity instruments is the grant date; the measurement date for liability instruments is the settlement date. Different rules also apply to public vs. private companies depending on the type of award instrument. (Executive summary, Paragraph 2) http://www.journalofaccountancy.com/Issues/2007/Apr/ARoadMapForShareBasedCompensation.htm Three features to help identify a share based transaction with employee program: 1. Employees that are shareholders are granted additional benefits Additional benefits indicate the entity is dealing with the individuals as employees or providers of services rather than as investors or equity holders. Examples of additional benefits include: • Employees have the right to additional shares if the business performs well (often referred to as a ratchet mechanism). • Employees’ rights depend on whether the entity floats or is sold through a trade sale (ie, in the event of a trade sale an employee may automatically get a cash payment or a number of shares). 2. The arrangement incorporates ‘leaver conditions’Such conditions indicate the entity is......

Words: 1838 - Pages: 8