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Employee removed from restructuring list. What is the accounting treatment for the previous agreed and honored retention bonus?

accounting for reversed bonusesFacts: As part of our company's restructuring plan, employee A was notified on 3/30/2014 for his termination on 9/30/2014. A was eligible for severance payments of $50K, plus retention bonus of $30K for his service from 3/30/2014 to 9/30/2014. The total of $80K restructuring liabilities were accrued over the six months period as restructuring expense. On 9/15/2014, company decided that the position is critical for the company, and removed employee A from the restructuring list. Because employee A stayed over the original termination date, the retention bonus were honored and paid on 9/30/2014. Accordingly, the $50K severance liabilities accrued for employee A was reversed on 9/15/2014. For the $30K retention bonus that were accrued and paid, what would be the proper accounting treatment? What is the accounting reference for this scenario? (1) The retention bonus arise due to the restructuring plan. And the employee fulfilled his obligation.So the $30K retention bonus was part of restructuring expense. (2) The employee A is not terminated, and the expense should not be part of restructuring expense. All liabilities previously accrued should be reversed.

Answers

Anonymous
(Sr Manager, SEC Reporting) |

We have exactly the same issue too, would greatly appreciate any responses to this.

Anonymous
(Sr Manager, SEC Reporting) |

I looked further into SAB 100's Topic 5, P, Q&A #4. Although it's not for retention bonus and focus more on the liability, seems it would tend to agree to (2) accounting treatment: need to reclass the retention from restructuring to normal operating expenses.

"Question 4: If Company A decides not to close one of the stores in a period following the quarter in which it recognized a liability for exit costs and involuntary employee termination benefits for the 80 identified stores, may Company A leave the accrued exit costs and involuntary employee termination benefits for that store on its balance sheet in anticipation of costs expected to be incurred when other stores are identified for closing?

Interpretive Response: No. Exit costs and involuntary employee termination benefits accrued for the store should be reversed. At each balance sheet date (annual or interim), exit cost and involuntary employee termination benefits accruals should be evaluated to ensure that any accrued amount no longer needed for its originally intended purpose is reversed in a timely manner. When an exit, termination, or other loss accrual is no longer appropriate, reversal of the liability should be recorded through the same income statement line item that was used when the liability was initially recorded. Generally accepted accounting principles (GAAP) do not permit unused or excess liability accruals to be retained as general accruals, used for purposes other than that for which the liability was established initially, or returned to earnings over time and in small amounts. Furthermore, costs actually incurred in connection with an exit plan should be charged to the exit accrual only to the extent those costs were specifically included in the original estimation of the accrual. Costs incurred in connection with an exit plan but not specifically contemplated in the original estimate of the liability for exit costs and involuntary employee termination benefits should be charged to operating expense in the period incurred, or the period that the exit cost or involuntary termination benefit qualifies for accrual under EITF 94-3, with appropriate explanation in MD&A.

Companies should have appropriate internal accounting controls with respect to exit, termination, or other loss accruals and the related expenses. These controls must ensure the company is in compliance with Section 13(b) of the Securities Exchange Act of 1934 and provide a reasonable basis for ensuring adjustments required by GAAP (increases or decreases) with respect to such liabilities are made on a timely basis."

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