Firms May Have Latitude in Stock Option Accounting

U.S. corporations will be afforded latitude in measuring the value of employees’ stock options when new rules go into effect requiring them to count options against profits, under guidelines being prepared by the Securities and Exchange Commission, a person familiar with the matter said Monday.

A bulletin to be issued by the staff of the SEC’s chief accountant will inform companies that, to a reasonable extent, they could use different methods to value employees’ options from those used by other businesses in similar situations, the source said, confirming a report in the Wall Street Journal.

The bulletin could be made public as soon as this week, the person said. The bulletin will serve as guidance for companies but will not amount to a regulation. SEC spokesmen declined to comment.

The new rules by the Financial Accounting Standards Board call for publicly traded companies to record employee stock options as an expense beginning with their first fiscal reporting period after June 15, a mandate that could dramatically reduce the reported earnings of many big companies.

The rules raised a firestorm of protest and lobbying when the rule-setting board proposed them in March 2004, especially from Silicon Valley’s high-tech industry, where stock options for employees created legions of millionaires in the dot-com era.