Norwalk, CT, July 31, — The accounting for employee stock options has received renewed attention in recent months. Over the past few weeks there have been two important developments.

The FASB has been actively working with the IASB and other major national standard setters to bring about convergence of accounting standards across the major world capital markets. The FASB will then consider whether it should propose any changes to the U.

In the meantime, in response to requests by companies considering switching to the preferable method under FAS , the FASB also plans to consider at its August 7 public meeting whether it should undertake a limited-scope, fast-track project relating to the transition provision in FAS Literally applied, the existing transition provision in FAS would require companies that elect to change to the preferable method to do so prospectively for stock options granted after the date of the change.

This transition provision was appropriate when FAS was issued in because, at that time, companies did not have valuation information available relating to previous grants of employee stock options.

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However, that is no longer the case given the disclosure requirements that have now been in effect since under FAS Since , the Financial Accounting Standards Board has been the designated organization in the private sector for establishing standards of financial accounting and reporting.

Those standards govern the preparation of financial reports and are officially recognized as authoritative by the Securities and Exchange Commission and the American Institute of Certified Public Accountants. Such standards are essential to the efficient functioning of the economy because investors, creditors, auditors and others rely on credible, transparent and comparable financial information. For more information about the FASB, visit our website at www.

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CONTACT US HELP ADVANCED SEARCH. We understand that a number of other companies also are considering adopting that method. The FASB applauds those companies because recognizing compensation expense relating to the fair value of employee stock options granted is the preferable approach under current U. It also is the treatment advocated by an increasing number of investors and other users of financial statements.

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The FASB modified that proposal in the face of strong opposition by many in the business community and in Congress that directly threatened the existence of the FASB as an independent standard setter. Thus, while FAS provides that expense recognition for the fair value of employee stock options granted is the preferable approach, it permitted the continued use of existing methods with disclosure in the footnotes to the financial statements of the pro forma effect on net income and earnings per share as if the preferable, expense recognition method had been applied.

Stock Option Rules Simplify Reporting, FASB Says

Until now, only a handful of companies elected to follow the preferable method. The International Accounting Standards Board IASB has concluded its deliberations on the accounting for share-based payments, including employee stock options, and announced plans to issue a proposal for public comment in the fourth quarter of That proposal would require companies using IASB standards to recognize, starting in , the fair value of employee stock options granted as an expense in arriving at reported earnings.

While there are some important differences between the methodologies in the IASB proposal and those contained in FAS , the basic approach is the same—fair value measurement of employee stock options granted with expense recognition over the vesting period of the options.

About the Financial Accounting Standards Board Since , the Financial Accounting Standards Board has been the designated organization in the private sector for establishing standards of financial accounting and reporting.

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