
FASB votes to review stock-based compensation standards
“A move to require an expense treatment would be consistent with the FASB’s commitment to work towards convergence between US and international accounting standards,” said Robert Herz, FASB chairman. “In taking all these factors into consideration, the Board concluded that it was critical that it now revisit this important subject.”
Investors’ demand for options to be accounted for as expenses got a boost last year when rating agency Standard & Poor’s began factoring in stock option grant expenses to determine core earnings. This, together with political pressure on the back of US corporate accounting scandals, and moves by UK-based accounting standards setter the International Accounting Standards Board (IASB) to make treating stock options as an expense a requirement, led many US companies to voluntarily adopt the practice. Coca-Cola, Ford Motor Company and General Electric are just some of the companies that now treat employee stock options as an expense.
FASB first proposed that companies be required to recognise stock-based compensation in the income statement using a ‘fair value’ method in the mid 1990s. But it subsequently backed down in the face of strong opposition and allowed the continued use of the ‘intrinsic’ approach to valuation, which is regarded as something of a whitewash because it generally gives a compensation cost of zero.
In November, the FASB asked for comments on whether it should review its current guidelines, contained in Statement No. 123, Accounting for Stock Based Compensation, and its Related Interpretations. The deadline for comments was reached last month, with 293 responses.
The IASB proposes mandatory treatment of employee stock options as an expense using the fair-value approach. European Union companies are set to adopt the practice in 2005.
US senator Carl Levin (Democrat, Michigan), who has been advocating stock option accounting reform for the past 10 years, welcomed the vote. “Corporate scandals have shown how current US accounting rules are fuelling stock option abuses linked to excessive executive pay, dishonest accounting, and nonpayment of taxes by profitable corporations,” he said. “FASB made the right decision today. Stock options are the 800-pound gorilla that has yet to be caged by corporate reform.”
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
More on Regulation
Basel’s IRRBB shock scenario update hit by US crisis
Recalibration of shocks had been touted for Q3, but wider rethink may now cause delay
HKMA launches consultation on green taxonomy
Regulator could use proposal to assess progress of banks towards climate goals
After SVB downfall, EBA stress test seeks out unrealised losses
European regulator asks for data on the fair value and sensitivity of bonds and their hedges
EU banks fear Brexit battle over FRTB internal models
Bank of England approach looks easier, but that may not make much difference to model uptake
Europe’s new IRRBB test: the riddle with no answer
A proposed compromise on net interest income test is not scientific, but exact calibration may be impossible
Eurex clearing chief calls for active account carve-outs
Isda AGM: Müller says EU clearing thresholds should exempt market-making and US client trades
The regulator that troubleshoots first, asks questions later
Canada’s bank watchdog aims to intervene early to tackle burgeoning risks, even at the expense of “perfect” regulatory decisions
Banks dispute EBA’s new threshold for IRRBB test
Banks say new proposal for identifying outliers on net interest income is still too severe