More Will Expense Stock Options
More companies--including the world’s biggest auto maker--joined the ranks Tuesday of corporations pledging to expense stock options. But it could be a year before such disclosures become mandatory for all companies.
The Financial Accounting Standards Board, which sets accounting rules for U.S. corporations, said Tuesday that it won’t be able to require companies to treat stock options as an expense until as late as next summer.
Some investors and lawmakers want companies to start recording options as an expense sooner, arguing it would make income statements clearer and more accurate. Pressure to adopt the practice intensified after a series of high-profile bookkeeping scandals.
About 30 companies, including Coca-Cola Co., General Electric Co. and Bank One Corp., since July 1 have said they will voluntarily start the practice.
On Tuesday, General Motors Corp. said it will begin expensing stock options granted to employees in 2003, though the company said it is concerned about how best to fairly value options.
GM said that in 2003 it expects the expense associated with options to be about $85 million, or 15 cents a share. GM shares rose $1.08 to $42.84 on the New York Stock Exchange.
Other companies that Tuesday said they will begin expensing options included Cooper Industries Ltd., Tupperware Corp., Comerica Inc. and Emerson Electric Co.
The accounting standards board, which was rebuffed by a corporate lobbying campaign in 1994 when it tried to require companies to expense options, is now under pressure to push through rules requiring the change.
But FASB Chairman Robert Herz said the group is debating the issue and would need to consider comments from accountants, executives and investors to any proposed changes “through the winter” should the board decide to require firms to expense options. The rules might be in place by “late spring or early summer,” he said.
That’s too slow for some. FASB was chastised at a meeting on investor confidence hosted by the New York Society of Security Analysts for moving at a “glacial pace,” in the words of one participant.
“Now is the time to do it,” said Byron Wien, senior investment strategist at Morgan Stanley.
When FASB in 1994 voted to require companies to count options as an expense, technology companies lobbied Congress to pressure the FASB to back down. The accounting group did, allowing companies to leave option costs off income statements if they list the expense in a footnote.
Most tech companies continue to resist the change. In a conference call Tuesday, Cisco Systems Inc. said it has no plans to begin charging options against profit.
Even companies that have pledged to begin expensing option costs have raised concerns about how to do it accurately. GM on Tuesday said “current valuation methods are not ideal,” and it urged accountants and regulators to come up with a plan.
