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Under FAS 123(R) (now called ASC Topic 718), the term liability accounting is used instead of the former term variable accounting to denote the accounting treatment of equity awards that are not a fixed expense amount.
Liability accounting occurs when, at grant, the exercise price or the certainty of receiving a stock award is based on varying conditions or if the award is paid out entirely in cash, as with indexed options or cash-settled performance share plans and SARs. The grant is then expensed against company earnings in each quarter according to its value, with the final cost equaling the actual cash payout.
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