Manual02zzz.com

BOPCOM-02/69FifteenthMeetingoftheIMFCommitteeonBalanceofPaymentsStatisticsCanberra,Australia,October21–25,2002EmployeeStockOptionsinBalanceofPaymentsStatisticsPreparedbytheStatisticsDepartmentInternationalMonetaryFundEmployeeStockOptionsinBalanceofPaymentsStatisticsApaperonemployeestockoptionswaspresentedbyJapantolastyear'sCommitteemeeting(BOPCOM-01/30).
Thepaperhighlightedtherangeofalternativearrangementsandthecomplexityofissuesinvolved,particularlyonclassification,valuationandtiming.
Debatehasgoneonforsomeyearsinthenationalaccountingandbusinessaccountingcommunities.
TheOECDmeetingofNationalAccountsExpertsonOctober8–11,2002willdealwithemployeestockoptionsanditproposestomakerecommendations.
Anyrecommendationswillalsoberelevanttobalanceofpaymentsstatisticsiftransactionsbetweenresidentsandnonresidentsareinvolved.
ItisplannedtogiveaverbalreporttoBOPCOMondevelopmentsattheOECDNationalAccountsmeetingtosupplementthispaper.
Oneissueiswhetheremployeestockoptionsaretreatedasfinancialderivativesorascontingentcontracts.
Thedefinitionoffinancialderivativesexcludescontingencies(FD6ofFinancialDerivatives:ASupplementtotheFifthEdition(1993)oftheBalanceofPaymentsManual),ofwhichcontinuingemploymentorsatisfactoryperformancewouldbeexamples,soanemployeestockoptioncannotbeaderivativeuntiltheemployeefulfillsthequalifications.
Eventhen,itisnotentirelyclearthatemployeestockoptionswouldbetreatedasoptions(e.
g.
,FD11definesoptionsasinvolvingthepaymentofapremiumtothewriter).
Thetimingisalsounclear,becausetheoptionsaretypicallyinitiallyofferedaspartofanemploymentcontract,theemployeemayormaynotqualifysometimelater,andthesharesoroptionsmaynotbeissueduntilsometimeafterthat.
Aswell,thebenefitstypicallyrelatetoworkdoneoverseveralperiods.
Thetimingandvaluationofemployeestockoptionsinteract.
Ifvaluationisatthetimeofgranting,thevalueofoptionswouldusuallybezeroorlow.
Thetimingcanmakeasignificantdifferencetotheclassification,asthevalueatthetimeofrecognitionwouldbecompensationofemployees,whileallsubsequentchangeswouldbeholdinggainsorlosses.
InJuly2002,theInternationalAccountingStandardsBoardadoptedadraftstatementAccountingforShare-BasedPayment(attached).
Itnotesthatseveralreviewsoftheissuehaveunanimouslyconcludedthatemployeestockoptionsshouldbetreatedasanexpenseatthetimethattheproductionunderlyingthegrantingoftheoptionstakesplace.
Transactionsshouldbevaluedatthevestingdatabasedonthefairvalueoftheoptionsissued.
Itnotedthatexpenseshouldnotbesubsequentlyreversedinafutureaccountingperiodevenifthesharesoroptionsgrantedweresubsequentlyforfeitedduetofailuretomeetvestingconditions.
Mostemployeestockoptionsareresident-to-residentarrangements.
ThisnoteidentifiesthelimitedcasesinwhichemployeestockoptionsinvolveBOPtransactions.
-2-Situation1:AresidentemployeeofaresidententerprisereceivesoptionsorstocksinanonresidententerpriseAnexampleofwherethissituationcouldariseisforresidentsubsidiaries.
Becauseasubsidiarymaynothavepubliclyavailablestocksoftheirown,optionsorstocksintheparentcompanycouldbeofferedasanalternativeincentivetotheemployees.
Insuchcases,ifthesubsidiaryprovidesthestockoroptiontotheemployee,itisaresident-to-residenttransaction.
TherewillbeBOPtransactionsbetweentheemployerandtheownerorissuerofthestocksoroptions,howeverthesewillbestraightforwardastheydonothavetheclassification,timing,orvaluationissuesassociatedwiththepaymentofbenefitstotheemployee.
Ifthosetransactionsinvolvedstocks,ratherthanoptions,theywouldbeclassifiedasportfolioinvestment,ratherthanreversedirectinvestment,becausetheintendedholderistheemployee,notthesubsidiary.
1Thatclassificationwouldbettershowtheeconomicrealityandbeconsistentwiththetreatmentofothertransactionsinkindinthenationalaccounts—thetransactionwillbetreatedasiftherewereacashpaymentbytheemployertotheemployee(whichiscompensationofemployees)andtheemployeethenpurchasesthestock.
Ifthestockoroptionisissuedbytheparent(ratherthanboughtonthemarket),itwouldbenormallybeexpectedthattheresidentsubsidiarywouldreimbursethenonresidentparent.
Ifnopaymentbytheemployerhasbeenidentified,theremaybeaneedtoinvestigatewhethertherehasbeenanundetectedinternalaccountingentryorwhethersuchanentrycouldbeimputedtobetterreflecteconomicreality.
Situation2:(a)AresidentemployeeofanonresidententerprisereceivesstockoptionsfromtheemployerOR(b)anonresidentemployeeofaresidententerprisereceivesstockoptionsfromtheemployerSomeemployeesmayberesidentsofdifferenteconomyfromtheiremployer(e.
g.
,livingnearaborder,bycommutingortelecommuting).
Inthesecases,thecompensationofemployeestransactionsarewithinthescopeoftheBOP.
Inthiscase,thebalanceofpaymentstransactionswouldbeclassifiedandvaluedinthesamewayasresident-to-residenttransactions.
1Thisappearstobetheonlyissueinemployeestockoptionsthatisexclusivetobalanceofpayments,asresident-to-residenttransactionsdonothavethedirect/portfolioinvestmentsplit.
-3-QuestionsfortheCommittee:1.
DoCommitteemembersfindtheissueofemployeestockoptionstobesignificantinbalanceofpaymentscompilation2.
DoCommitteemembershaveviewsontheproperclassification,valuation,andtimingofemployeestockoptions3.
CanCommitteemembersidentifyanyothercaseswhereemployeestockoptionsgiverisetobalanceofpaymentstransactions4.
DoCommitteemembershaveanyviewsontheInternationalAccountingStandardsproposalsAttachment