The major recommendations set forth by FASB in Statement 123(R) are outlined as follows.
1. Public companies should measure the cost of stock based compensations through a fair value measurement approach and this cost should be duly recognised by the company. The costs of these stock options will have to be recorded during the period of service of an employee and cost of stock options which do not have any relevant service related to them would not be recognised.
2. The companies will be required to recognise stock based options on fair value accounting measures but in cases where fair values cannot be estimated, costs will not be recognised on superficial assumptions.
3. The fair values recognised for stock options will be continuously measured to evaluate any changes in the fair value. Any changes in fair value of stock options will be recognised as compensation costs for the period the change occurs.
4. Companies will use option pricing models where underlying market prices are not available for similar stock options. The option pricing models will be slightly adjusted to match the features of stock options.
5. Additional tax benefits arising out of stock options will be recognised as an increase in the paid-in capital.
6. The last recommendation or provision of the statement covers the disclosure of details of stock based compensation plans and any specific details regarding stock options during a period in the notes to the financial statements for better understanding and decision making by investors (Financial Accounting Standards Board).
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