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...

Anti Burger Kings: Seven US companies shrinking tax the old-fashioned wayBurger King’s decision to combine with Canadian donut shop Tim Hortons is renewing controversy over the lengths some US companies will go to...
Read more from Larry Perry here and in the Today's World of Audits archive.Since the AICPA's Financial Reporting Framework for Small- to Medium-sized Entities (FRF for SMEs) and some other financial reporting...
The US Securities and Exchange Commission (SEC) has chosen a former partner and vice chairman with Deloitte LLP as its new chief accountant.James Schnurr, who specialized in financial and SEC reporting for public companies...

Already a member? log in here.

Upcoming CPE Webinars

Aug 28
Excel spreadsheets are often akin to the American Wild West, where users can input anything they want into any worksheet cell. Excel's Data Validation feature allows you to restrict user inputs to selected choices, but there are many nuances to the feature that often trip users up.
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.