FASB Begins Final Draft of Stock Options Expensing Rule

Despite opposition, the Financial Accounting Standards Board is moving ahead with a rule that would require companies to book stock options as a business expense.

The accounting rule-maker decided last week to begin the final draft of the rule, which was first proposed in March and sparked a deluge of response, the Wall Street Journal reported. Supporters, which include the Securities and Exchange Commission, say the rule would give a truer picture of the company’s finances. Opponents are mainly technology companies that use stock options as a form of compensation to attract top talent to start-ups.

Congress got into the act last month, when the House of Representatives voted 312 to 111 to limit expensing options to only the company's top five executives. The legislation forbids expensing for rank-and-file workers, and calls for economic impact studies by the Commerce and Labor departments.

The bill now goes to the Senate, where a resolution was passed to "protect the independence and integrity" of the FASB.

Employees with stock options are allowed to buy stock at a specified price sometime in the future. Companies normally issue them at the market price of their stock on the date of issue. Options are worth nothing unless the stock price rises above the price on the issue date.

The FASB also decided to move ahead on a rule that would change how companies account for certain types of bonds — a type of debt security that can be paid off in shares. Companies usually pay off bondholders in cash, but companies are allowed to issue new shares to bondholders in lieu of cash if the bond has a share-settlement option.


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