SEC’s Nicolaisen Wants FASB to Handle Stock-Option Rule
The Financial Accounting Standards Board (FASB) should stick with its plan to issue a new rule on expensing stock options by the end of the year.
So says Donald Nicolaisen, the top accountant of the Securities and Exchange Commission, in a Friday interview with Dow Jones Newswires. Nicolaisen suggested, however, that FASB delay implementation to give companies time to get ready for the new accounting rules. Companies are already reeling from the new internal control requirements mandated by the Sarbanes-Oxley Act. It would be easier for companies and auditors if the new rules kicked in later next year, rather than the first quarter of 2005, he said.
FASB has proposed requiring companies to report stock options as a business expense on their books, which would affect earnings. Companies currently show the cost of options in a footnote to their financial reports, and even that is not required.
Small companies and start-ups, whose shares are not actively traded, could use extra help in estimating the value of stock options, Nicolaisen said. "I think we can provide some guidance of what would be acceptable" when estimating volatility, he said.
He is not pushing for a delay in action by FASB, even though lawmakers are pushing for more study and a far narrower rule on stock-options expensing. "Let the process run," Nicolaisen said. "Their deliberations ought to continue."
The U.S. House of Representatives got involved in the issue and approved legislation earlier this year that would delay new accounting rules for stock options except those options granted to the top five executives in the company.
Those who hold stock options have the right to purchase stock at a later date at a predetermined price. Stock options can be quite valuable if stock prices jump. Critics of the stock-options expensing rule say the value of stock options is difficult to figure with any accuracy and would not improve corporate accounting.