ESOP Accounting

[DPL]

Matching contribution is used to pay down ESOP loan. Also, a portion of S distribution on suspense shares is used to pay debt. Would Compensation expense for GAAP still reflect the full average value of shares released from both sources?

[Marcus R Piquet]

I would say yes to both.

I see no distinction between an employer contribution in the form of a match vs. the more typical discretionary, profit-sharing contribution.

Dividends on unallocated/suspense shares are always considered compensation expense, as opposed to those paid on allocated/released shares which are charged to retained earnings. Since dividends on unallocated shares are compensation expense, I treat them the same was as contributions when used by the ESOP to service debt - that is, they are adjusted to the average FMV of released shares.

Attached is a hand-out we've used at the ESOP Association conferences on this topic. Originally it came from Becky Miller, who co-authored SOP 93-6. I've since modified it (with her permission).

Here's the relevant FASB guidance:

FASB ASC 718-40-25-16: "Because employers control the use of dividends on unallocated shares, dividends on unallocated shares shall not be considered dividends for financial reporting purposes. Dividends on unallocated shares used to pay debt service shall be reported as a reduction of debt or of accrued interest payable. Dividends on unallocated shares paid to participants or added to participant accounts shall be reported as compensation cost."

Compensation cost, FASB ASC 718-40-30-2: "For employee stock ownership plan shares committed to be released to compensate employees directly, the employer shall recognize compensation cost equal to the fair value of the shares committed to be released. The shares generally shall be deemed to be committed to be released ratably during an accounting period as the employees perform services, and, accordingly, average fair values shall be used to determine the amount of compensation cost to recognize each reporting period (interim or annual)."

Let me know if you have any more questions.

Marcus Piquet, CPA

Journal_Entries_2011_11_02.doc