CCR reacts to FSPs relating to 123(R).

FEI's Committee on Corporate Reporting (CCR) has written to the Financial Accounting Standards Board (FASB) to endorse a proposed FASB staff position (FSP), Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards, related to stock-based compensation as defined in FASB Statement No. 123(R), Share-Based Payment.

In a letter to Lawrence W. Smith, Director of Technical Application and Implementation Activities for FASB, CCR endorsed what it deemed FASB's efforts "to modify and simplify" the rules. The Oct. 10 letter states, "The proposed FSP provides an elective alternative transition method for determining the opening balance of the APIC pool upon adoption of FAS 123(R). As is often the case with other transition matters, considerations surrounding the determination of the transition balance of the APIC pool are much more pragmatic than conceptual in nature. Of necessity, such decisions must take into account what is feasible for constituents.

"We therefore believe it is entirely appropriate for the Board to modify and simplify the requirements in light of new information provided to it regarding the challenges faced by preparers in implementing the new standard. CCR believes that the proposed alternative transition method will be helpful to preparers and auditors, and we therefore fully support the proposed change."

The letter adds, "CCR observes that the benefits of the proposed change are not limited to those financial statement preparers that do not have the data available and are unable to recreate it for purposes of adopting the new standard. Our members have encountered interpretive issues related to transactions involving stock options that have occurred over the ten-year period covered by the requirement.

"We do not anticipate that those issues will be resolved prior to the effective date of the standard, so the alternative transition method provides the opportunity to have those issues addressed prospectively. We also note that, from a resource standpoint, the alternative method provides an opportunity to streamline work devoted to transition and redirect those resources to the ongoing accounting and reporting requirements of the new standard."

The CCR letter was filed 10 days after an earlier letter from CCR taking issue with a different proposed FSP on FAS123(R), Practical Exception to the Application of Grant Date as Defined in FASB Statement No. 123(R).

"We believe it is unfortunate that this issue was raised with the FASB staff outside of the Resource Group," the letter states. "Had this issue been considered initially by the Resource Group, we believe it could have been addressed within the context of the application of reasonable professional judgment, and thus, would not require formal guidance." FEI is represented on FASB's FAS123(R) Resource Group, which includes preparers, auditors and others.

"In our view," the letter continues, "providing further guidance in the form of authoritative literature in response to inquires from constituents on such basic issues as 'grant date' undermines efforts to achieve an 'objectives' or 'principles'-based standards system. This FSP, as proposed, adds to an overly complex rules-based system.... Nevertheless, we agree that formal guidance from the FASB staff is now required given the recent debate and controversy generated by the staff's initial response to the inquiries from certain constituents."

CCR's letter concluded, "We appreciate the practical approach taken in the proposed FSP," but noted "certain changes [should] be considered before the proposed FSP is issued in final form." Specifically, CCR recommended, "the condition relating to communication of the terms of the award should be based on a 'reasonable' time period ... instead of the proposed 'relatively short' time period."