Accountancy Help!!!?

Question

I would like to know to which all industries is the Accounting standard 25 applicable to?

Please tell me the various industries....

Answer 1

After months of negotiations and last minute maneuvering by representatives of NAPEO, the Financial Accounting Standards Board (FASB) recently issued a favorable interpretation of its rules related to the issuance of incentive stock options (ISOs) by clients of PEOs. This new interpretive ruling will allow PEO clients to develop stock incentive plans for co-employees under the preferred Accounting Practices Bulletin Opinion 25 (APB 25).

APB 25 is generally regarded as preferential to accounting for incentive stock options by electing a simple footnote disclosure. The alternative requires the vested portion of incentive stock options to be accounted for under Statement of Financial Accounting Standard 123 requiring a more immediate balance sheet impact.

In December 1998 and again in March 1999, FASB had issued tentative, or preliminary, interpretations of APB 25 that specifically recognized the PEO as an employer for benefits and wages in a co-employment arrangement. However, these original interpretations created confusion in the accounting and investment community by declaring the PEO was presumptively the employer for incentive stock options in a situation where only one of two employers could issue ISOs. While intended as a rebuttable presumption, the language created confusion and raised questions about the ability of PEO clients to develop employee stock option plans for co-employees.

The Accounting Practices Committee of NAPEO immediately formed a special task to develop a more practical and workable alternative. Members of the Task developed a detailed position and traveled to FASB headquarters in Norwalk, Connecticut, to present the industry's position. In addition, NAPEO mobilized members of the industry's accounting community to provide written comments to FASB.

The new Interpretative portions (paragraphs 2-6) of Interpretation 44 of FASB Opinion 25 that are applicable to PEOs are as follows

Question 1(a)-Does Opinion 25 apply to the accounting by a grantor for stock compensation granted to independent contractors or other service providers who are not employees of the grantor?

Interpretation-No. Opinion 25 applies only to the accounting by an employer corporation for stock compensation based on the employer's stock granted to individuals who meet the definition of employee under Opinion 25 as discussed further in Question 1(b). Paragraph 4 of Opinion 25 states, "This Opinion deals with some aspects of accounting for stock issued to employees...." Opinion 25 does not apply to stock compensation granted to individuals who are either independent contractors or other service providers who are not employees of the grantor.

Question 1(b)-What is the definition of employee for purposes of applying Opinion 25?

Interpretation-A grantee is an employee if the grantor exercises or has the right to exercise sufficient control over that individual to establish an employer-employee relationship. That relationship shall be determined based on common law as illustrated in case law and currently under U.S. Internal Revenue Service Revenue Ruling 87-41. Accordingly, for purposes of applying Opinion 25, a grantee meets the definition of an employee if the grantor consistently represents that individual to be an employee under common law. The definition of an employee for payroll tax purposes under the U.S. Internal Revenue Code includes common law employees. Accordingly, a grantor that classifies a grantee potentially subject to U.S. payroll taxes as an employee under Opinion 25 must also (except as provided in paragraph 6) represent that individual as an employee for payroll tax purposes. A grantee does not meet the definition of an employee under Opinion 25 solely because the grantor represents that individual as an employee for some, but not all, purposes. For example, a requirement or decision to classify a grantee as an employee for U.S. payroll tax purposes does not, by itself, indicate that the grantee is an employee for purposes of Opinion 25 because the grantee must also be an employee of the grantor under common law.

A grantor may grant stock compensation to an individual who provides services to the grantor pursuant to 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. In this situation, whether the grantor-lessee classifies the grantee as an employee for payroll tax purposes is not relevant to determining whether the grantee is an employee under Opinion 25. A leased individual is deemed to be an employee of thelessee under Opinion 25 if all of the following requirements are met:

The leased individual qualifies as a common law employee of the lessee, and the lessor is contractually required to remit payroll taxes on the compensation paid to the leased individual for the services provided to the lessee.

The lessor and lessee agree in writing to all of the following conditions related to the leased individual:

The lessee has the exclusive right to issue stock compensation to the individual for the employee service to the lessee.

he lessee has a right to hire, fire, and control the activities of the individual. (The lessor also may have that right.)

he lessee has the exclusive right to determine the economic value of the services performed by the individual (including wages and the number of units and value of stock compensation granted).

The individual has the ability to participate in the lessee's employee benefit plans, if any, on the same basis as other comparable employees of the lessee.

The lessee agrees to and remits funds sufficient to cover the complete compensation, including all payroll taxes, of the individual on or before a contractually agreed upon date or dates to the lessor."