SCOPE OF ACCOUNTING PRINCIPLES BOARD OPINION NO 25 in Visual Studio .NET

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392 SCOPE OF ACCOUNTING PRINCIPLES BOARD OPINION NO 25
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FASB Interpretation No 44 addresses questions that have been raised as to whether Opinion No 25 applies to accounting by the grantor of stock compensation to independent contractors or other service providers not employees of the grantor It states that Opinion No 25 applies to grantor employers for only stock compensation to those who meet the de nition of employee under Opinion No 25 as ampli ed by Interpretation No 44 For purposes of applying Opinion No 25, a person is an employee if the grantor consistently represents the person to be an employee under common law, as illustrated in case law and under US Internal Revenue Service Revenue Ruling 87 14 For such a person to be a common law employee, the grantor must represent the person as an employee for payroll tax purposes However, simply representing a person as an employee for payroll tax purposes is insuf cient to indicate that the person is an employee for purposes of Opinion No 25 An exception to the guidance in the preceding paragraph involves a grantor of stock compensation to a person who provides services to the grantor under a lease or co-employment agreement between the grantor and another entity under which the grantor is not the employer of record for payroll tax purposes Such a person is deemed to be an employee of the grantor under Opinion No 25 if all of the following criteria are met:
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392 SCOPE OF ACCOUNTING PRINCIPLES BOARD OPINION NO 25
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a The person is a common law employee of the grantor, and the other entity is contractually required to pay payroll taxes on the compensation paid to the person for services provided to the grantor b The grantor and the other entity agree in writing to all of the following: 1 The grantor has the exclusive right to grant stock compensation to the person for the person s services to the grantor 2 The grantor has a right to hire, re, and control the activities of the person (The other entity may have the same right) 3 The grantor has the exclusive right to determine the economic value of the services performed by the person (including wages and the number of units and value of stock compensation granted) 4 The person can participate in the grantor s employee bene t plans, if any, on the same basis as comparable employees of the grantor 5 The grantor agrees to and does remit funds to the other entity suf cient to cover the complete compensation of the person, including all payroll taxes, on or before a contractually agreed date or dates A nonemployee member of a grantor s board of directors ordinarily does not meet that de nition of an employee However, application of Opinion No 25 is required to stock compensation granted to such a person for services provided as a director if the person (a) was elected by the grantor s shareholders or (b) was appointed to a board position to be lled by shareholder election when the existing term expires Employee status is not involved for awards granted to people for advisory or consulting services in a nonelected capacity or to nonemployee directors for services outside their role as directors, such as legal or investment banking advice or for loan guarantees Except as indicated in the preceding paragraph, Opinion No 25 does not apply to the accounting by a grantor for stock compensation granted to nonemployees For example, it does not apply to the accounting by a corporate investor of an unconsolidated investee for stock options or awards granted by the investor to employees of the investee accounted for under the equity method Whether a person is an employee under Opinion No 25 is evaluated for consolidated nancial statements at the consolidated group level Stock compensation based on the stock of any consolidated group member is accounted for under Opinion No 25 if the person meets the definition of an employee for any entity in the consolidated group For example, Opinion No 25 applies to the accounting in the consolidated nancial statements for awards based on parent stock granted to employees of a consolidated subsidiary, to awards in stock of a consolidated subsidiary granted to employees of the parent, and to awards based on a consolidated subsidiary s stock granted to the employees of another consolidated subsidiary Opinion No 25 does not apply to accounting by an employer for stock compensation granted to its employees (a) by another entity, such as an investee, based on that entity s stock or (b) by the employer based on the stock of another entity Though that would seem to apply to awards based on the stock of a subsidiary for purposes of reporting in the separate nancial statements of the subsidiary, Opinion No 25 does apply in such circumstances if the subsidiary is part of the consolidated group including the parent company for purposes of preparing its consolidated nancial statements With a change in status of a grantee to or from that of an employee of the grantor while an outstanding stock option or award is retained by the grantee with no modi cation of any of its terms, compensation cost under Opinion No 25 is measured as if the award were newly granted at the date of the change in status Only the portion of the newly measured cost attributable to the remaining vesting (service) period is recognized as compensation cost prospectively from the date of the change in status Further, no adjustment is made to compensation cost recognized by the grantor before the change in status unless the award is forfeited unvested because the grantee does not ful ll an obligation A modi cation made to a vested award s terms as a result of a change in
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