Accounting 541: Audit of Share-Based Payment and Special Purpose Entities

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MEMORANDUM TO: Senior, Publicly Traded Company FROM: Team B (Staff I) DATE: February 4, 2013 SUBJECT: Audit of Share-Based Payment and Special Purpose Entities (SPE) Reporting This executive memo is a summary and analysis of our audit findings for the client, a publicly traded company, and its financial practices. Please review this correspondence in accordance with your request. We look forward to meeting in person for further discussion and to make an informed recommendation about if this client’s policies are consistent with GAAP. Share-Based Payment Reporting In 2004 the Financial Accounting Standards Board (FASB) released Statement No. 123 that “established a fair-value-based method of accounting for share-based…show more content…
What we look for to Ensure Client is Consistent with GAAP It is important that we ensure that the client is GAAP compliant. According to SFAS No. 150, included in FASB ASC 480, the balance sheet should distinguish between debt and equity (Schroeder et al., 2011, p. 485). FASB ASC 480-10 requires that certain obligations (liabilities that do not qualify as liabilities according to SFAC No. 6) that could be settled by issuing equity securities, such as preferred stock, be classified as liabilities (Schroder et al., p. 489). In 1990, FASB released SFAS Nos. 105 and 107 to address the need for disclosing risk by including a discussion in the notes of financial statements that distinguishes between liability and equity instruments or items that have characteristics of both and accounting for these items must be handled in a distinct manner (Schroeder et al., 2011, p. 489). A compensatory stock option plan gives employees an option not offered to all employees or stockholders. Accounting for this type of plan requires recording the expense and measuring the timing of the expense correctly (Schroeder et al., 2011, p. 497). The necessity to determine the measurement date is of primary importance and all other reporting hinges on this determination. Recording stock dividends is another important task. Beyond disclosing in the notes the dividend

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