Reciprocal and Non‐Reciprocal Transactions: The FASB’s Stock‐Based Compensation Project

Susan Newberry

Abacus, 2001, vol. 37, issue 2, 177-187

Abstract: Whether the FASB’s conceptual framework can be used to derive accounting treatments has been debated. Mozes (1998) argued that the conceptual framework’s high level of abstraction meant that several alternative views were possible for the treatment of stock‐based compensation and that this was unhelpful. This article identifies a problem at the abstract level of the conceptual framework that requires resolution before Mozes’ proposals to remedy the high level of abstraction may be acted upon—the inappropriateness of the conceptual framework’s distinction between liabilities and equity. The conceptual framework is clear that equity transactions are non‐reciprocal but the accounting treatment to be derived from this view is unacceptable and was not presented as an option in the stock‐based compensation project. Instead, the FASB’s basis for conclusions is based on reciprocal transactions, disguising the inappropriateness of the conceptual framework’s definitions. Failure to revise the conceptual framework leaves the FASB, and other standard‐setting bodies drawing on the FASB’s concepts, open to developing serious inconsistencies in other pro‐jects where the distinction between liabilities and equity is important, and without conceptual support for their stance on stock‐based compensation.

Date: 2001
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