The International Employee Stock Options Coalition is asking the Financial Accounting Standards Board (FASB) to "field test" stock-option valuation models before issuing new statements covering the issue.
The group sent a letter to FASB Chairman Robert Herz on Thursday that said, "Investors, issuers and all stakeholders in the financial reporting system would be well-served by such testing," Dow Jones Newswires reported.
Currently, FASB does not require companies to expense stock options, but a new standard under consideration would require the options to be expensed the same way other types of compensation are expensed. FASB is expected to issue an exposure draft to seek public input in February.
"If the board ultimately proposes mandatory expensing of all options on the face of the income statement, we believe it has an obligation - before adopting a new accounting standard - to consider multiple valuation methods, test them, and evaluate their accuracy and reliability," the IESOC said.
The letter from IESOC claims there is "widespread recognition" that there is no tried and tested way to value employee stock options and the IESOC Chairman Rick White’s letter said, "field testing makes sense under these circumstances in order to safeguard the integrity of financial statements." He added that stock options don’t count as an expense since there is no cash payment or use of corporate assets.
"The cost of stock options is borne by stockholders through potential dilution, and this expense is already accounted for, and disclosed to investors, in diluted earnings per share," the IESOC said, adding that it would be willing to help FASB coordinate field tests that should involve no fewer than 100 companies, the Big Four accounting firms and other consultants, Dow Jones reported.
The letter made reference to another instance when the FASB used field testing to test its efforts on business combinations and accounting for mergers. The tests resulted in a change in approach by FASB, the letter stated.