The US Financial Accounting Standards Board (FASB) has announced its second retreat in as many weeks on how corporates should account for employee stock options.
Last week the Board voted four to three in favour of allowing companies to use a portfolio-based approach to accounting for the income-tax effects of stock options. This was included in FASB’s original accounting standard, 123, but had been ruled out in the draft of a revised version, known as 123R. The decision will save corporates from amending their accounting systems to enable them to track individual awards of share options.
It follows a similar FASB announcement the previous week to step back from a ban on straight-line-amortization in 123R. The ban would have forced companies that issue stock options with graded vesting ? that is, options that become available to employees in different portions at different times ? to account for each vested portion separately. Like the decision last week, this simplifies corporate accounting procedures under 123R.
FASB has also recently stepped back to standard 123 on the allocation of the cost of options and the accounting of employee share purchase programmes. Both decisions, again, made the accounting process simpler.
The FASB judgements follow several weeks of meetings intended to address concerns raised in letters and public roundtable discussion about its proposed stock options accounting standard.
The standard is intended to curb excessive executive bonuses by forcing stock options to be recorded as an expense on the company’s balance sheet, improving corporate governance and transparency. The problem is that greater transparency means more complicated compliance requirements, which US companies, particularly in the IT industry, have lobbied fiercely against.
Tomorrow the Board is scheduled to meet again to address several other areas of concern, including fair-value measurement of options, out-of-the-money options and settlements. It will also discuss delaying the effective date of 123R due to pressure from the US Securities and Exchange Commission, which has voiced concerns over giving companies enough time to adapt to the requirements for expensing stock options.
