FASB Grapples With Valuation of Stock Options

How to place a value on stock options is just one of the issues the Financial Accounting Standards Board (FASB) is challenged with as it moved this week to allow companies to reverse stock option expenses on their financial statements when an employee later gives up the options.

The Board is working to develop new stock option accounting rules. Most of corporate America is deeply concerned and adamantly opposed to the Board’s move last month to require the expensing of options. Expensing stock options cuts into profits and corporations have fought the wave to make it a requirement.

The Board decided this week to allow the companies to reverse the expense on their books when employees forfeit their options. The biggest task FASB now faces is deciding how to place a value on the options and how they should be reflected in financial statements.

FASB, which establishes U.S. accounting standards, has struggled with the demand for more conservative accounting rules in the wake of recent corporate scandals.

Options are a big part of employee compensation packages and are often liberally distributed, especially by technology firms. The technology industry has been most vociferous in its objection to the expensing of options.
Texas Instruments Chief Executive Tom Engibous recently told a group of analysts that he had seen no good way to place a value on stock options.

"I think it's going to push us to a cash flow accounting way of doing things because I think it's almost a ludicrous way of doing things," Engibous said, adding that his company would certainly adhere to any new rules the Board sets.

You may like these other stories...

IRS must take oath on Lerner emails: judgeMackenzie Weinger of Politico reported on Thursday that a federal judge ordered the IRS to explain under oath how it lost emails connected to Lois Lerner, the ex-IRS official at the...
Credit Suisse says pension assets at risk unless court delays sentencingJohn Letzing of the Wall Street Journal reported on Wednesday that Credit Suisse Group AG says its management of billions of dollars in assets for...
The prospect of International Financial Reporting Standards (IFRS) being fully adopted in the United States in the near future are growing less likely, as the Financial Accounting Standards Board (FASB) and the International...

Upcoming CPE Webinars

Jul 16
Hand off work to others with finesse and success. Kristen Rampe, CPA will share how to ensure delegated work is properly handled from start to finish in this content-rich one hour webinar.
Jul 17
This webcast will cover the preparation of the statement of cash flows and focus on accounting and disclosure policies for other important issues described below.
Jul 23
We can’t deny a great divide exists between the expectations and workplace needs of Baby Boomers and Millennials. To create thriving organizational performance, we need to shift the way in which we groom future leaders.
Jul 24
In this presentation Excel expert David Ringstrom, CPA revisits the Excel feature you should be using, but probably aren't. The Table feature offers the ability to both boost the integrity of your spreadsheets, but reduce maintenance as well.