The Financial Accounting Standards Board has issued final staff guidance on freestanding financial instruments originally issued as employee stock compensation. The guidance is intended to lessen the adverse effect of the panel's new set of rules on accounting for stock options and stock-based compensation and to help ensure consistent reporting of instruments. The rules (FSP FAS 123(R)-1) took the form of a FASB staff position (159 DTR G-1, 8/18/05).
With the release of the rules, companies avoid having to classify the one-time employee awards as a liability. They would still be able to record the instrument as equity throughout the life of the instrument, despite, for example, the exit of an employee from a company. However, the original accounting treatment under FASB No. 123(R) would not continue if the terms of the instrument are modified when the holder is no longer an employee. The guidance essentially defers application of a provision of FASB No. 123(R) for the instruments formerly known as employee stock-based compensation.
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