FASB to change rules on stock options
By Andrew Hill in New York
Published: August 6 2002 23:28 | Last Updated: August 6 2002 23:28
Financial Times
The Financial Accounting Standards Board could take the first step on Tuesday towards a change in the accounting of stock options, one of the most controversial issues in US book-keeping.
The FASB is due to consider possible changes to the transition period for companies that choose to treat stock options as expenses.
Until recently, most companies have chosen not to deduct stock options costs from profits. Instead, they have listed the potential cost in a footnote.
But, in trying to make their accounts more transparent, a growing number of companies - including Coca-Cola, Amazon.com, General Electric and, on Tuesday, General Motors - have announced a change to the stricter treatment.
"We have gotten a lot of calls from companies and people in the investment community saying 'How is the transition going to work?'," Bob Herz, FASB chairman, said on Tuesday.
Under current rules, options are treated as expenses as they are granted, starting with the fiscal year in which the stricter treatment is adopted. FASB will decide on Tuesday whether to propose that past grants should also be deducted from profits.
Speaking at a meeting of the New York Society For Security Analysts, Mr Herz said some companies favoured a cumulative approach because it would give them time to alter their options plan and lower the eventual impact on earnings.
Others would prefer to book the full effect from the outset, so that earnings are comparable. "We're going to talk about one or two alternatives and how it can be made clear and transparent," said Mr Herz. Any proposal for a "limited-scope, fast-track project" to change the rules would be put out for public comment.
A change would ease the FASB into the controversial question of whether to make deduction of stock option costs mandatory.
Mr Herz, who favours such an approach, said the FASB would republish its eight year old project to treat stock options as an expense, which was opposed by a strong business lobby. It would appear for public comment alongside similar proposals by the International Accounting Standards Board. Discussion over the winter could result in a formal proposal by "early spring or summer" of 2003, said Mr Herz.
Advocates of mandatory deduction of option costs believe the explosion in stock options in the 1990s was partly responsible for recent scandals, as managers tried to pump up their companies' share prices. |
