Accounting & Tax

Breathing Room for Stock-Option Proposal

SEC chairman defends the accounting board's process; FASB chairman suggests the possibility of different treatment for small companies.
Stephen TaubMay 6, 2004

William Donaldson, chairman of the Securities and Exchange Commission, has told Congress that it should allow the Financial Accounting Standards Board to create the rules for expensing stock options, according to Bloomberg.

“The process established by the FASB to consider the pending stock option proposal should be allowed to run its course,” Donaldson reportedly wrote in a letter to Rep. Paul Kanjorski (D-Pa.).

At a subcommittee hearing of the House Financial Services Committee, FASB chairman Robert Herz defended the accounting board’s plan even as some lawmakers said the proposal was already harming companies, pointed out Bloomberg. “Many technology firms have already announced that they will no longer issue employee options,” said Rep. Edward R. Royce (R-Ca.).

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Herz did leave open the possibility that small companies may be treated differently when FASB issues its final rules, according to Reuters. “The cost of any new accounting standard can fall disproportionately on small businesses, so we have to be very careful,” Herz told reporters after the hearing.

Many critics have claimed that small companies, which may not be able to offer the pay or prestige of their larger rivals, will be especially hurt if they are required to expense options. However, George Batavick, chairman of FASB’s Small Business Advisory Committee, reportedly said at the hearing that about 95 percent of small businesses do not even grant employee stock options.

Batavick also noted that FASB has set the end of June as the deadline for submitting comments on the board’s options-expensing proposals, and that FASB expects to issue a final standard by year’s end.

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