Stock Option Expensing to Become Mandatory in 2005

The Financial Accounting Standards Board met on October 29 to put some of the final touches on its decisions towards mandating expensing of stock options just like any other compensation - an issue which has been steadily gaining momentum for over ten years.

Among the decisions reached by FASB at this week's meeting:

  • Expensing of stock options will become mandatory for companies beginning in 2005.

  • The "modified prospective" approach will be used to expense the options uniformly across all companies - currently there are three different methods allowed which makes it difficult for investors to compare on to the other.

  • The board agreed on the objectives of disclosure of stock option information to help investors better understand the effects of expensing, but has not yet identified specific disclosure requirements.

Currently, most companies still do not expense stock options out of concern for the impact it will have on their profitability. Those companies do, however, need to identify the value of its options in the footnotes of its financial statements.

FASB had previously decided not to mandate any single formula for determining the value of options, leaving companies with a choice of a couple of commonly used methods to choose from.

FASB is expected to propose rules for public comment in early 2004 and issue final rules on stock option expensing in the second half of 2004.

You may like these other stories...

CFOs and management accountants are playing an ever-increasing role in supporting the adoption of natural capital accounting in their organizations, according to a recent report.Natural capital – forests, rivers,...
Tesco says it overstated profit forecastStanley Reed of the New York Times reported that Tesco, the large British grocery retailer, disclosed on Monday that it had overstated its expected half-year profit by about $400...
The Public Company Accounting Oversight Board (PCAOB) on Monday reminded auditors that they should continue adhering to the board’s existing standards when considering an organization’s ability to operate as a...

Already a member? log in here.

Upcoming CPE Webinars

Sep 24
In this jam-packed presentation Excel expert David Ringstrom, CPA will give you a crash-course in creating spreadsheet-based dashboards. A dashboard condenses large amounts of data into a compact space, yet enables the end user to easily drill down into details when warranted.
Sep 30
This webcast will include discussions of important issues in SSARS No. 19 and the current status of proposed changes by the Accounting and Review Services Committee in these statements.
Oct 21
Kristen Rampe will share how to speak and write more effectively by understanding your own and your audience's communication style.
Oct 23
Amber Setter will show the value of leadership assessments as tools for individual and organizational leadership development initiatives.