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What factor typically determines the accounting treatment for share-based plans? multiple choice question.

a. the type of condition that must be fulfilled by employees of the sponsoring company.
b. the type of company that sponsors the share-based plans.
c. the organizational structure of the company sponsoring the plans.

User Doreen
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Final answer:

The accounting treatment for share-based plans is typically determined by the type of conditions that must be met by employees. These conditions, such as performance or vesting criteria, are pivotal in aligning employees' interests with shareholder goals and are more relevant than the company's type or organizational structure in determining how these compensation plans are accounted for. Option B or C is the correct answer.

Step-by-step explanation:

The factor that typically determines the accounting treatment for share-based plans is a. the type of condition that must be fulfilled by employees of the sponsoring company. Share-based compensation plans are intricate elements of an organization's compensation strategy and are influenced by various factors. For instance, plans can be structured to include conditions such as vesting periods, performance metrics, and service requirements that must be met by employees to earn equity in the company.

Share-based plans are critical for aligning the interests of employees with those of shareholders. When the employees' performance directly impacts the value of their equity rewards through meeting specific performance conditions, it incentivizes them to work towards the success of the company.

These conditions can be characterized as vesting conditions, market conditions, or performance conditions, each affecting the accounting treatment differently. The accounting for share-based payments under applicable financial reporting standards, such as IFRS 2 or ASC Topic 718, is complex and depends on the nature of these conditions. Therefore, whether a company is public or private (option b) or its organizational structure (option c) is less relevant than the condition types attached to the share-based payment when determining accounting treatment.

User Simekadam
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