are debited. Transactions in which unearned ESOP shares are credited and
compensation cost is debited have both equity and expense characteristics.
\11/ SOP 93-6 superseded SOP 76-3 and is required for ESOP shares acquired
after December 31, 1992. Employers are permitted, but not required,
to apply the provisions of SOP 93-6 to shares purchased by ESOPs on
or before December 31, 1992, that have not been committed to be
released as of the beginning of the year of adoption.
111. The Board agreed that it could be argued that the direct reductions to
shareholders' equity under Opinion 25 and SOP 93-6 that will eventually be
recognized as compensation expense are items of other comprehensive income.
However, because those transactions involve the company's own stock, an
argument also could be made that those are transactions with owners and
hence are not other comprehensive income. In other words, those types of
transactions have both equity (transaction with owners) characteristics and
expense (comprehensive income) characteristics.
112. The Board concluded that it was beyond the scope of the project to
determine whether deferred compensation expense and reductions to equity
related to ESOPs were items of other comprehensive income. Therefore,
until it makes a definitive decision about those items in a broader-scope
project on comprehensive income, those transactions are to be considered as
equity transactions and are not to be included as other comprehensive
Taxes Not Payable in Cash
113. A reorganized enterprise may suffer net operating losses prior to
reorganization that provide it with significant tax advantages going
forward. SOP 90-7, Financial Reporting by Entities in Reorganization Under
the Bankruptcy Code, requires that a reorganized enterprise record a "full
tax rate" on its pretax income although its actual cash taxes paid are
minimal because of those net operating loss carryforwards. "Taxes not
payable in cash" are reported in the income statement as an expense with a
corresponding increase to paid-in capital in shareholders' equity.\12/