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Strategies & Market Trends : Employee Stock Options - NQSOs & ISOs -- Ignore unavailable to you. Want to Upgrade?

To: R2O who wrote (662)	6/17/2004 11:25:17 AM
From: hueyone	Read Replies (2) \| Respond to of 786

Interesting points. "expense deduction at time of exercise" But NOT at time of grant. Actually many of us, including myself, have been guilty of using the expression "expensing at time of grant". I believe the FASB proposal is to "value" options at time of grant but then go on to amortize the expense over the vesting period. There would be no expense for unvested options if I am not mistaken. If congress wants to do something useful maybe they should prevent this. But in their zeal to make sure that 'the rich folks' not get away with anything ... Imo, Congress' zeal and meddling with the FASB proposal is currently being driven by campaign contributions from various lobbies, especially the tech lobbies. Many tech companies are extremely anxious to keep as much expense hidden off the books as possible imo. Those in Congress voting for the recent bill that would only require expensing options going to the top five executive officers are helping some of the business lobbies reach their goal of keeping some expenses hidden. In the present, can companies decide on how to treat expense deduction at time of exercise, or is it a matter of tax code? I would guess that companies would want to take the biggest deduction they can, which historically has been the difference between market price and exercise price at time of exercise. I really don't know whether the tax treatment would change were the current FASB rule were to go in to effect. Maybe Rkal knows. Any way to 'reverse' an expense that causes funding to be missed and co. to tank? AFAIK, there is no way to reverse expenses in the instance where a company tanks and the options end up never having any value---at least this was the case with the 1994 FASB proposal; it didn't provide for adjustment related to subsequent changes in price and value. There were several proposals floating around SI that pushed for a combination of value at grant, amortize that value over the vesting period, and then make expense adjustments up or down to the previously expensed options depending on the final value at time of exercise. I kind of liked that idea, but as far as I know, there is no provision for subsequent changes in value of the option in the FASB proposal. In general however, I tend to think the FASB is very well versed and educated in dealing with accounting issues and specifically this issue and its implications, and I tend to have some degree of confidence in their analysis over the years. I would tend to think the FASB is less politicized than Congress---although in reality all agencies are subject to some political pressures. I have way less confidence for any proposal on this issue coming from Congress, whom are not accounting experts, and whom are much more heavily influenced by campaign contributions and lobbying. Here is the link to the FASB exposure draft where you may be able to find much better answers to your questions than I was able to give. If you find some more information on tax treatment and other issues you raised under the new proposal, please share them with us. fasb.org I don't have a link for the new proposal passed by the House committee, but it shouldn't be hard to find. JMHO, Huey