Letter Summarizes SEC Views on Stock Options

The Office of the Chief Accountant of the Securities and Exchange Commission (SEC) on Tuesday issued a public letter to the accounting industry summarizing the staff’s views regarding the accounting for stock options in the historical financial statements of public companies.


“The views expressed in this letter will assist in the resolution of accounting issues that have been raised during reviews of the past stock option grants in a way that benefits investors and the capital markets,” SEC Chief Accountant Conrad Hewitt said in a statement.

Prior to the adoption of the Financial Accounting Standards Board’s (FASB’s) Statement No 123 (revised 2004), Share-Based Payment, many public companies accounted for stock options under Accounting Principles Board Opinion No. 25 Accounting for Stock Issued to Employees. This letter discusses the accounting consequences under Opinion 25 of dating an option award to predate the actual award date, option grants with administrative delays, uncertainty as to the validity of prior grants, and other related circumstances.

The letter, in response to the ongoing backdating scandal, clearly states that it has not been approved by the Commission.

More than 100 companies have publicly stated or acknowledged being involved in investigations of options granting practices. Several executives have resigned or been removed in association with options investigations. William Ruehle, chief financial officer (CFO) of Broadcom Corp. since 1997, according to EE Times, stepped down abruptly on Tuesday, less than a month after the company announced that it would restate finances for 2000 through the first quarter of 2006. Also on Tuesday, Reuters reports that the board of directors of Monster Worldwide Inc. suspended Myron Olesnyckyj, senior vice president, general counsel and secretary, effective immediately, pending the results of a review of the company’s stock option grant practices. Monster said it may restate financial statements for the year ending December 31, 2005, as well as prior years, however, these restatement would not materially affect 2006 earnings.

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