FASB Considers Costs to Small Businesses in Stock Option Issue

When final rules are adopted requiring expensing of stock options, small businesses may get different treatment than big corporations, according to the chair of the Financial Accounting Standards Board.

At a congressional hearing Tuesday, FASB Chairman Robert Herz defended the board's March recommendation for mandatory expensing, but noted that the board is concerned about a "cost-effective" approach to small businesses. He said FASB has developed some provisions to address the cost issue.

"I am very interested in the subject, because the cost of any new accounting standard can fall disproportionately on small businesses, so we have to be very careful," Herz told Reuters after the hearing.

But George Batavick, chairman of FASB's Small Business Advisory Committee, testified that about 95 percent of small businesses do not grant employee stock options. He added that no federal law requires nonpublic enterprises to use FASB standards.

The board has recommended that the cost of stock options — the right to buy or sell stock for a set price at a future date — should be deducted from profit in corporate income statements. Members of Congress and technology firms are in opposition, saying stock options can lure young talent at start-ups that don’t have the money to pay employees up front. Critics of stock options say they have served as a temptation for corporate executives to use accounting tricks to inflate stock prices.

FASB has asked for comments by the end of June and is expected to issue any final options standard by year's end.

Meanwhile, as Congress threatens to block FASB’s plan, Securities and Exchange Commission Chairman William Donaldson sent a letter to a group of House lawmakers urging them to leave the issue alone.

He said the Sarbanes-Oxley Act of 2002 reaffirms the independence of FASB. "I believe that the process established by the FASB to consider the pending stock option proposal should be allowed to run its course," Donaldson wrote.

You may like these other stories...

Regulatory compliance, risk management and cost-cutting are the big heartburn issues for finance execs in the C-suite. Yet financial planning and analysis—a key antacid—is insufficient.That's just one of the...
A review of Financial Accounting Standards Board (FASB) guidance on share-based payment transactions found that the 2004 standard achieves its purpose and provides useful information to investors and other users of financial...
An examination initiative launched by the US Securities and Exchange Commission (SEC) earlier this week will enable the agency to evaluate whether municipal advisors are complying with new SEC rules that went into effect...

Already a member? log in here.

Upcoming CPE Webinars

Aug 26
This webcast will include discussions of recently issued, commonly-applicable Accounting Standards Updates for non-public, non-governmental entities.
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 11
This webcast will include discussions of commonly-applicable Clarified Auditing Standards for audits of non-public, non-governmental entities.