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FASB simplifies expensing stock options

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.

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