Title:Assurance and Advisory Partner Company: Frank, Rimerman + Co. LLP
| Jan 10, 2011
Let me give you the technical GAAP answer and fill in some practical guidance also. GAAP allows for two acceptable answers for your question. Legal fees associated with stock issuance may be expensed as incurred, or offset against the proceeds raised. As a practical matter, most companies choose to offset them against the proceeds, since that doesn't flow through the P&L. Also, as a practical matter, I've only seen that treatment in connection with material fundraising, such as a round of preferred stock or some other stock offering. Fees associated with small transactions such as exercise of stock options typically are not material, and therefore are just expensed as incurred.
Answers
Company: Frank, Rimerman + Co. LLP
Let me give you the technical GAAP answer and fill in some practical guidance also. GAAP allows for two acceptable answers for your question. Legal fees associated with stock issuance may be expensed as incurred, or offset against the proceeds raised. As a practical matter, most companies choose to offset them against the proceeds, since that doesn't flow through the P&L. Also, as a practical matter, I've only seen that treatment in connection with material fundraising, such as a round of preferred stock or some other stock offering. Fees associated with small transactions such as exercise of stock options typically are not material, and therefore are just expensed as incurred.