123R Accounting Issues
Transition
• Prospective method for “Non-public” companies – confusion
– Only private companies that used “minimum value” method
• Modified prospective method for “public” companies
– Any company that didn’t use “minimum value” method
• Very few modified retrospective elections for “public” companies
– Requires restatement
– Changes of auditor during look-back period require consents
– Poolings during look-back period must be factored in
June 13, 2006 1 The Fox School Fourth Annual Conference
on Executive Compensation
123R Accounting Issues
APIC Pool
• Election to use Alternative Simplified Method
to establish opening balance
– Limits data required to prior annual reports
– Provides APIC pool for pre-1995 awards
– Uses current expected tax rate not historical
– Permits mingling of ISO with NQSO if data to
parse not available
June 13, 2006 2 The Fox School Fourth Annual Conference
on Executive Compensation
123R Accounting Issues
Graded Vesting Awards
• Accounting election to straight-line
expense or treat each vesting as a
separate award
June 13, 2006 3 The Fox School Fourth Annual Conference
on Executive Compensation
123R Accounting Issues
Acceleration of vesting in 2005 to avoid
expense
June 13, 2006 4 The Fox School Fourth Annual Conference
on Executive Compensation
123R Accounting Issues
New disclosures and alterations to
previous disclosures
• Need to employ disclosure checklist
• Pro-forma disclosures for minimum value
not permitted
June 13, 2006 5 The Fox School Fourth Annual Conference
on Executive Compensation
123R Accounting Issues
Modifications
• Treated as exchange of old option for new
– Value new instrument
– “Re-value” old instrument
– Expense excess value of new over old
June 13, 2006 6 The Fox School Fourth Annual Conference
on Executive Compensation
123R Accounting Issues
Modifications that create “discounted”
options
• Create deferred compensation
June 13, 2006 7 The Fox School Fourth Annual Conference
on Executive Compensation
Contact Information
Glenn James
glenn.james@gt.com,215.656.3055
June 13, 2006 8 The Fox School Fourth Annual Conference
on Executive Compensation