Summary of Interpretation No. 44

Accounting for Certain Transactions involving Stock Compensation—an interpretation of APB Opinion No. 25


APB Opinion No. 25, Accounting for Stock Issued to Employees, was issued in October 1972. Since its issuance, questions have been raised about its application and diversity in practice has developed. During its consideration of the accounting for stock-based compensation, which led to the issuance of FASB Statement No. 123, Accounting for Stock-Based Compensation, the Board decided not to address practice issues related to Opinion 25 because the Board had planned to supersede Opinion 25. However, Statement 123 permits entities to continue applying Opinion 25 to stock compensation involving employees. Consequently, questions remain about the application of Opinion 25 in a number of different circumstances.

This Interpretation clarifies the application of Opinion 25 for only certain issues. It does not address any issues related to the application of the fair value method in Statement 123. The issues addressed herein were selected after receiving input from members of both the FASB Emerging Issues Task Force and the task force on stock compensation that assisted in the development of Statement 123. Among other issues, this Interpretation clarifies (a) the definition of employee for purposes of applying Opinion 25, (b) the criteria for determining whether a plan qualifies as a noncompensatory plan, (c) the accounting consequence of various modifications to the terms of a previously fixed stock option or award, and (d) the accounting for an exchange of stock compensation awards in a business combination.

In considering those issues, the Board focused on interpreting Opinion 25. The Board decided not to amend the Opinion 25 framework because most of the problems inherent in the Opinion 25 intrinsic value method are addressed in Statement 123 through that Statement's recommended fair value method. Consequently, in determining the guidance in this Interpretation, the Board reached its conclusions within the framework of Opinion 25 and did not refer to concepts underlying the fair value method described in Statement 123.

This Interpretation is effective July 1, 2000, but certain conclusions in this Interpretation cover specific events that occur after either December 15, 1998, or January 12, 2000. To the extent that this Interpretation covers events occurring during the period after December 15, 1998, or January 12, 2000, but before the effective date of July 1, 2000, the effects of applying this Interpretation are recognized on a prospective basis from July 1, 2000.