FASB Approves Expensing of Stock Options

The debate on mandatory expensing of stock options moved center stage last week when the Financial Accounting Standards Board (FASB) voted unanimously to require companies to expense employee stock options. It could take up to a year before the final draft is released with the new rule taking effect sometime in 2004. In 1994 the board considered adopting the expensing method but encountered resistance from corporate groups as well as Congressional members. It seems likely that will happen again.

Last month, 15 U.S. Senators sent a comment letter saying that FASB’s decision-making process is "fundamentally flawed." The legislators asked the board to reconsider its position, arguing that expensing stock options would give investors inaccurate information.

Another critic of expensing is the International Employee Stock Options Coalition (IESOC), a coalition of trade associations and companies, including Financial Executives International, NASDAQ, and the National Association of Manufacturers. IESOC says that FASB is making a "rush to judgment," and has failed to consider alternative approaches. IESOC contends that a switch to expensing will hurt U.S. innovation and entrepreneurship.

Over the years, one of the most vocal opponents to expensing options has been the high-tech industry, which relies on generous stock option plans to attract and retain workers. But even that industry is feeling heat from investors. On April 24, Apple Computer shareholders approved a non-binding proposal to have the company expense options. It’s the first high-tech company to pass such a measure in Silicon Valley.

The debate on stock options isn’t just focused in the United States. Last July, the International Accounting Standards Board voted to publish an exposure draft of a proposed international accounting standard that would require the expensing of stock options. A month later, FASB agreed to consider changing the method of accounting for stock options.

You may like these other stories...

Planning has begun to determine the content, design, and structure of the next version of the Uniform CPA Examination – and the American Institute of CPAs (AICPA) is asking the accounting profession for its feedback on...
Read more from Larry Perry here and in the Today's World of Audits archive.As RMM (the combination of inherent and control risk) increases, more and better evidence is needed to evaluate financial statement assertions....
Treasury Secretary Lew to speak on tax reform, inversionsDamian Paletta of the Wall Street Journal wrote on Friday that Treasury Secretary Jacob Lew is planning a September 8 speech about a controversial corporate strategy...

Already a member? log in here.

Upcoming CPE Webinars

Sep 9
In this session we'll discuss the types of technologies and their uses in a small accounting firm office.
Sep 10
Transfer your knowledge and experience to prepare your team for the challenges and opportunities of an accounting career.
Sep 11
This webcast will include discussions of commonly-applicable Clarified Auditing Standards for audits of non-public, non-governmental entities.
Sep 18
In this course, Amber Setter will shine the light on different types of leadership behavior- an integral part of everyone's career.