By now, we all know stock options are to be recorded as an expense. Indeed, options expensing has been an issue for so long that one detail has been largely overlooked: when were the options granted?
Typically, companies and accountants have considered the grant date to be the date the award is approved by the board or compensation committee.
Not so with FAS 123(R). In a meeting with Big 4 firms a couple of weeks ago, FASB staff clarified the date of grant as when "employer and employee have a mutual understanding of the key terms and conditions of the award" -- i.e. grant date is the date the award is communicated to the employee.
For a lot of companies, this could mean a change of procedure, especially at large companies with employees spread out geographically. Many employers prefer grant awards to be communicated to the employee by his manager; this offers a good opportunity to discuss performance.
Under FAS 123(R), this is no longer practical; it means potentially recording the expense on a number of different grant dates, and even recording different values -- ugh.
Accountants are advising clients to set up electronic systems that notify employees of grants all at once.
Needless to say, people aren't exactly rejoicing over the grate-date fine print. As a memo from Executive Compensation Resources, a information resource of Towers Perrin, puts it, "It is unclear why [FASB] chose not to debate in public the merits and the costs of this issue. If the current decision stands without public discourse, we hope the SEC staff will intervene and issue more practical guidance..." |
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