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Auditing a Publicly Traded Company 2

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Auditing a Publicly Traded Company 2
Auditing a Publicly Traded Company
Memo:
To: Senior Staff Member
From: Team A
Date: September 13, 2010
Subject: Share-based payment reporting and special purpose entities reporting
December 16, 2004 the Financial Accounting Standards Board issued Statement 123, Shared- Based Statement, which took the place of Accounting for Stock-Based Compensation and replaced Accounting Principal Board Opinion No. 25 Accounting for Stock issued to Employees. Share-based payment is “a transaction in which the entity receives or acquires goods or services either as consideration for its equity instruments or by incurring liabilities for amounts based on the price of the entity 's shares or other equity instruments of the entity. The accounting requirements for the share-based payment depend on how the transaction will be settled, that is, by the issuance of (a) equity, (b) cash, or (c) equity or cash” (Deloitte, 2010). Statement No 123 covers a variety of compensation agreements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. Shared-based payment will give financier and other financial statement users with additional comprehensive and unbiased financial information by having the reimbursement cost relate to the share-based payment documented on the financial statement. This cost is measured by the fair value of the company’s equity or liability tools issued. “This Statement is the result of a two-year effort to respond to requests from investors and many others that the FASB improve the accounting for share-based payment arrangements with employees” (Financial Accounting Standards Board, 2004).
“A special purpose entity is a partnership, corporation, trust, or joint venture that is created for a limited purpose, with a limited life and limited activities, and that is designed to benefit a single company.” Special purpose entities derive from the transfer of assets, which are



References: Deloitte. (2010). IFRS 2 shared-based payment. Retrieved on September 12, 2010 from http://www.iasplus.com/standard/ifrs02.htm Financial Accounting Standards Board. (2004). FASB issues final statement on accounting for share-based payment. Retrieved on September 12, 2010 from http://www.fasb.org/news/nr121604_ebc.shtml Financial Accounting Standard Board. (2004, December 16). FASB issues final statement on Accounting for share-based performance. Retrieved from http://www.fasb.org/news/nr120604_ebc.shtml Journal of Accountancy. (2009, June 12). FASB Issues Standards on Securitizations, SPEs. Retrieved from http://www.journalofaccountancy.com/Web/20091801 Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2005). Accounting for Multiple Entities. In Financial Accounting Theory and Analysis, 8e (pp. 504-541).

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