SEC Chief Accountant Praises Options-Expensing Decision
By SIOBHAN HUGHES,December 16, 2004 6:50 p.m.
Of DOW JONES NEWSWIRES
WASHINGTON -- The Securities and Exchange Commission's top accountant praised accounting standards-setters for a stock-options expensing standard finalized on Thursday.
Don Nicolaisen, the chief accountant at the SEC, called the new standard an "important improvement" and urged companies to begin deducting the cost of stock options as soon as possible.
Companies will have to deduct stock options from profits starting with the financial reporting periods that begin after June 15, 2005, under a Financial Accounting Standards Board decision announced Thursday.
Investors have supported stock-options expensing, while technology companies that tend to hand out large amounts of stock options have opposed efforts to treat stock options as an expense. Until now, companies have been able to relegate details about the cost of stock options in footnotes of financial statements.
"It will provide complete information and will make it easier for investors to compare financial results among entities regardless of whether they use fixed or variable stock options or other forms of employee compensation," Nicolaisen said.
The SEC's position is at odds with that of some lawmakers, who have argued that stock-options expensing requirements will harm small businesses. Sen. Mike Enzi, R-Wyo., on Thursday complained about the FASB decision and threatened to push for legislation to block the accounting standards-setters.
"I had hoped FASB would listen carefully to the concerns voiced by small businesses and the business community," Enzi said. "I will have to thoroughly study the 295-page release before I can determine what legislation may be necessary next Congress."
Enzi has already introduced, with Senate Minority Leader Harry Reid, D-Nev., legislation that would dramatically weaken the accounting standard.
Nicolaisen said that preparers of financial statements, auditors and others need to use "their best judgment" when applying the standard. Judgment is involved because the standard requires companies to make assumptions about the value of the options, such as the future performance of the stock underlying the options.
He predicted that for many companies, their best estimates will differ from estimates used in footnote disclosures. The SEC plans to provide guidance to help preparers of financial statements, Nicolaisen said.
Stock options give holders the right to purchase stock at a predetermined price at a future date. Employees, especially executives, can reap millions from options grants if the price at which they may buy a stock is much lower than the price for which the stock sells in the open market.
-By Siobhan Hughes, Dow Jones Newswires; 202-862-6654; Siobhan.Hughes@dowjones.com |
