Accounting & Tax

SEC Postpones Options-Expensing Rule

One investment bank maintains that the delay ''provides more time for companies to window dress the impacts through acceleration of vesting, tweaki...
Stephen Taub and Dave CookApril 15, 2005

The Securities and Exchange Commission will push back the effective date of Statement 123R, the Financial Accounting Standards Board’s revised rule on expensing options, for calendar-year filers.

FASB’s previous effective date, which had been pushed back once already, called for most public companies to expense options beginning with fiscal quarters starting after June 15 — that is, during the quarter beginning July 1. SEC commissioners voted yesterday to change the effective date to fiscal years starting after June 15.

About 300 public companies whose fiscal years begin on July 1 will be unaffected by the delay, noted Bloomberg, as will smaller numbers of companies with fiscal years beginning in August or September. Companies that operate on a calendar-year basis, however, will not need to expense options until the March 2006 quarter.

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Small-business issuers must implement Statement 123R beginning with their first fiscal year after December 15.

The requirements of 123R represent a significant improvement in generally accepted accounting principles, which will “improve transparency for investors,” according to a statement by SEC chief accountant Donald Nicolaisen. “Feedback from public companies, accounting firms and others, however, indicated that implementing Statement No. 123R in a period other than the first quarter of a fiscal year potentially could make compliance more complicated for companies and comparisons of quarterly reports more difficult.”

A statement from Bear, Stearns maintained, however, that “this action will prolong the period during which there is a great deal of noncomparability, as some companies further delay expensing employee stock options.” The statement added that the delay “also provides more time for companies to window dress the impacts through acceleration of vesting, tweaking assumptions, and other maneuvers.”

Nicolaisen’s statement also noted that concerns had been raised that accounting staffs at companies and audit firms have already been stretched thin by other compliance responsibilities, such as internal controls reporting.