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Statement of Financial Accounting Standards No. 130 - page 37 / 57





37 / 57

with comprehensive income instead of net income as is required by FASB

Statement No. 95, Statement of Cash Flows.  When items of other

comprehensive income are noncash items, they would become additional

reconciling items in arriving at cash flows from operating activities and

would add additional items to the statement of cash flows without adding

information content.  Thus, the Board decided not to amend Statement 95.

Other Items Reported in Equity

108. Certain items are presently recorded in equity that some respondents

to the Exposure Draft thought should be considered as items of other

comprehensive income.  Those items are discussed below.

Deferred Compensation Expense and Unearned ESOP Shares

109. The Board considered whether unearned or deferred compensation

expense, which is shown as a separate reduction of shareholders' equity

pursuant to APB Opinion No. 25, Accounting for Stock Issued to Employees,

should be included as an item of other comprehensive income.  Paragraph 14

of Opinion 25 requires recognition of unearned compensation as a separate

reduction of shareholders' equity if stock is issued in a plan before some

or all of the services are performed by the employee.  According to Opinion

25, in the subsequent periods in which the employee performs services to

the employer, the employer is required to reduce the unearned compensation

amount in shareholders' equity and recognize compensation expense for a

corresponding amount.  Therefore, those transactions have both equity and

expense characteristics.

110. The Board also considered whether a reduction of shareholders' equity

related to employee stock ownership plans (ESOPs) should be included as an

item of other comprehensive income.  AICPA Statements of Position 76-3,

Accounting Practices for Certain Employee Stock Ownership Plans, and 93-6,

Employers' Accounting for Employee Stock Ownership Plans, provide guidance

on accounting for three types of ESOPs: leveraged, nonleveraged, and

pension reversion.\11/  The accounting for a leveraged ESOP results in a

direct reduction to shareholders' equity in the form of a debit to unearned

ESOP shares both when an employer issues shares or sells treasury shares to

an ESOP and when a leveraged ESOP buys outstanding shares of the employer's

stock on the open market.  As ESOP shares are committed to be released (SOP

93-6) or are released (SOP 76-3), unearned ESOP shares are credited and,

depending on the purpose for which the shares are released, (a)

compensation cost, (b) dividends payable, or (c) compensation liabilities

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