FASB Approves Rule on Options

Companies will have to begin deducting the value of stock options from their profits next year under a measure given final approval Thursday by the nation’s accounting rule maker.

The Financial Accounting Standards Board rule requires public companies to start expensing options beginning with their first fiscal reporting period after June 15, 2005. Private companies and companies that file as small-business issuers are not required to comply until after Dec. 15, 2005.

The action had been expected since the board’s Oct. 13 vote to proceed with the proposal and to reject any delay in implementing the measure next year.

Stock options allow workers to buy shares of their companies in the future at set prices. If the stock rises above the option price, the employee can reap the profit.

The technology industry relies heavily on options to attract and retain employees. In a statement Thursday, the Semiconductor Industry Assn. said the rule “requires companies that grant employee stock options to make many subjective assumptions about the value of options which in turn could affect the share price of their stock.”

Experts agree that companies will be forced to sharply reduce the number of options they grant. Advocates of the change say options are an expense of doing business and need to be booked as such.