2.8 Consolidated Financial Statements
Share-based payment awards issued to grantees of entities within a consolidated group include, for example, awards that a parent grants to its subsidiary’s employees or nonemployees and that are indexed to or settled in the parent’s equity instruments. A consolidated subsidiary may also grant share-based payment awards to employees or nonemployees of the parent or another subsidiary that are indexed to or settled in the equity of the consolidated subsidiary. In the consolidated financial statements, because the share-based payment awards are issued to employees or nonemployees of the consolidated group and indexed to or settled in the equity of an entity within the consolidated group, the awards are within the scope of ASC 718.
While FASB Statement 123(R) (codified in ASC 718) nullified FASB Interpretation 44, paragraph 11 of Interpretation 44 remains applicable by analogy. It stated, in part:
In consolidated financial statements, the evaluation of whether a grantee is an employee under Opinion 25 is made at the consolidated group level and stock compensation based on the stock of a subsidiary is deemed to be stock compensation based on the stock of the consolidated group (the employer). Therefore, in the consolidated financial statements, stock compensation granted based on the stock of any consolidated group member shall be accounted for under Opinion 25 if the grantee meets the definition of an employee for any entity in the consolidated group. For example, Opinion 25 applies to the accounting in the consolidated financial statements for awards based on parent stock granted to employees of a (consolidated) subsidiary and to awards in stock of a (consolidated) subsidiary granted to employees of the parent. Also, Opinion 25 applies to the accounting in the consolidated financial statements for awards based on a subsidiary’s stock granted to the employees of another subsidiary. This guidance applies only to consolidated financial statements. [Emphasis added]
Accordingly, the parent entity accounts for the awards under ASC 718 when preparing its consolidated financial statements.