SFAS No. 123's Earnings Effect: Was It As Significant As Expected?
SFAS 123 represented a significant compromise by the FASB and ended one of the most controversial projects in the Board's history. The main issue centered on how to recognize the expense associated with stock-based compensation. The FASB wanted to use the fair value of the stock-based compensation as the expense measure. This measurement would have increased the amount of expense for most firms. SFAS 123 encourages fair value measurement and recognition in the income statement but does not require it. Instead, a firm may choose to report in the footnotes pro forma net income as if the fair value measure had been used. This study examines the income effect associated with SFAS 123 for 688 firms that elected to report the effects through the footnote disclosure. The study finds the income effect of SFAS 123 to be material but not to the extent that many argued during the FASB's consideration of the issue.
Allied Academies International Conference
Clark, S. J.,
Jordan, C. E.,
Pate, G. R.
(2001). SFAS No. 123's Earnings Effect: Was It As Significant As Expected?. Allied Academies International Conference, 6(1), 167-171.
Available at: https://aquila.usm.edu/fac_pubs/21312