Employee Compensation: Post Employment and Share Based

Exam Focus

This is a complicated topic, but don’t be intimidated. Share based compensation expense is based on fair value on the grant date, and it is often necessary to use an option pricing model to estimate fair value. Understand the dilutive effects of share based compensation plans.

Accounting for pension plans may be complex, but the economic reasoning is not too difficult to grasp. Despite significant convergence between U.S. GAAP and IFRS, some differences remain, particularly with respect to recognition of pension cost in income statement. You should be able to explain how reported results are affected by management’s assumptions.

Employee compensation costs comprise cash, plus the value of benefits that employers provide to their employees. We need to understand the accounting treatment underlying different types of compensation, and their analytical issues.