FASB to Take Up Accounting For Stock Options

In a surprise reaction to recent events, it appears the Financial Accounting Standards Board (FASB) may soon undertake a project on accounting for stock options. The project does not appear on the technical plan approved by the board on July 10, 2002. But the decision was announced in an article published by the Washington Post on July 27, 2002.

The Post reports that FASB Chairman Robert H. Herz informed the Securities and Exchange Commission (SEC) of the decision to readdress stock options in a letter sent within the past week. Mr. Herz became FASB's chairman on July 1, 2002.

The reason for the unusual departure from FASB's normal "sunshine" procedures may have been a mandate from the SEC, but this seems unlikely since SEC Chairman Harvey Pitt has said he opposes forcing companies to expense stock options. Two other possible reasons:

  1. The International Accounting Standards Board (IASB) recently agreed to move forward with a proposal to require that companies recognize expenses for stock options. Mr. Herz, who was a part-time member of the IASB prior to joining FASB, reportedly said FASB plans to circulate a proposal for comment this fall that will outline the differences between the draft international rule and the one proposed by FASB in 1993. Then FASB will decide whether or not to conform its standard to IASB's.

  2. Several large U.S. companies recently decided to voluntarily report stock options as expenses in an attempt to give investors a clearer picture of their financial results. An interim step in FASB's project will be to provide more guidance to these companies.

A FASB Action Alert issued on July 31, 2002 confirmed that the Board will consider at its August 7th meeting whether to undertake a fast-track, limited-scope project to reconsider the transition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation. The FASB also issued a press release explaining its reasons for undertaking the project and clarifying its plans regarding accounting for employee stock options.

-Rosemary Schlank

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