Human Capital & Careers

FASB Might Delay Options Expensing

The board could put off enactment of its rule to buy time to sift through the 7,000 comment letters it's received.
Stephen TaubJuly 1, 2004

The Financial Accounting Standards Board (FASB) seems willing to delay corporate compliance with its new rules for expensing stock options, which are slated to go into effect at the end of the year, according to thedeal.com.

“We will certainly take requests for delay into consideration,” FASB member Michael Crooch reportedly said Tuesday at the board’s Norwalk, Connecticut, headquarters, where the accounting standards-setter was hosting its second roundtable discussion on the subject in less than a week.

The board could put off enactment of the new rule so that it can pore over the more than 7,000 comment letters that it has already received, according to Crooch. In part, the decision on a delay “will be based on how long it will take us to redeliberate the information we have received,” he said, according to the report.

FASB is weighing a number of methods for valuing stock options in addition to the binomial and Black-Scholes models that were mentioned in its initial proposal, Crooch reportedly said.

Among the potential alternative methods is one suggested by University of California, Berkeley, finance professor Mark Rubinstein and another by investment bank Integrated Finance Ltd., which was co-founded by Nobel Prize-winning economist Robert Merton, according to thedeal.com.

The Website notes that both approaches try to simplify how to calculate the value of a stock option. “Our staff is analyzing them, and they will be issuing a memo comparing the methods soon,” Crooch reportedly said.

Crooch refused to lay out a timeframe for the memo’s release or discuss the alternative calculation methods the board is mulling, however, according to the report.

Meanwhile, Teri List, vice president of corporate accounting at Procter & Gamble Co., reportedly made a case for delaying implementation for option expensing, arguing that many companies are already struggling to implement federally mandated corporate governance changes. That leaves relatively few people free to put in place a complex new system to value stock options, List said at the Norwalk meeting.

“Companies could have a difficult time implementing [the binomial method] in the timeframe specified,’ ” she reportedly said. The proposal “ignores problems with companies implementing Sarbanes-Oxley. We are proposing that the proposal be delayed by a year.”

Beginning in 2005, companies would be required under FASB’s plan to record the cost of providing options as an expense on their income statements. Recently, the House Financial Services Committee passed a measure that would limit the option-expensing requirement to a company’s five highest-paid employees, but the legislation has not advanced in the Senate.