GAAP reporting requirements for share-based payment and SPE
. . Generally SPEs help in the financing of certain assets or services and keeping the associated debt off the balance sheet of the sponsors. They also transform certain financial assets, such as trade receivables, loans, or mortgages, into liquid securities.
Formation of SPEs enable companies to remove debt from their balance sheet to they can meet certain ratios or loan covenants. According to SFAS 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities, any assets transferred to an SPE should be accounted for ...view middle of the document...
SFAS 140 also stipulates that, a qualifying SPE should not be consolidated in the financial statements of the transferor or its affiliates. The only time when an enterprise can include subsidiaries in its consolidated financial statements is when it has a controlling financial interest. Controlling interest is when a parent company has more than 50% of the voting stock in a subsidiary.
GAAP requirements for share-based payment
SFAS 123R, Share-based payment requires reporting entities to recognize in their financial statements the costs resulting from all share-based payment transactions at fair value.
public companies to recognize compensation cost from most share-based payment arrangements with employees. The audit will review the measurement of each equity instrument, to ensure the equity instruments awarded to employees are measured at fair value as of the grant date. The fair value in this case need to be based on either observable market prices of identical or similar equity or liability instruments in active markets, or on an established valuation technique. The audit will also determine if the company has more than one share-based payment and if so, full details will need to be disclosed. In reviewing the cash inflows and outflows, SFAS 123R requires excess tax benefits to be reported as a financing cash inflow on the statement of cash flows rather than as a reduction to income tax paid.