SEC Guidelines Give Firms Leeway on Accounting of Stock Options
The Securities and Exchange Commission, as expected, issued guidelines Tuesday that would give U.S. companies leeway in deducting the value of employees’ stock options against profits when new accounting rules go into effect.
But some business groups opposed to the mandatory expensing of options continued to contend that it would be too heavy a burden to expect companies to comply by midyear.
A bulletin issued by the SEC staff Tuesday informed companies that, to a reasonable extent, they could value employees’ options using methods different from those used by other businesses in similar situations.
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. The change could dramatically reduce some companies’ reported earnings.
Consistent with the FASB rules, “the SEC staff believes companies can choose from a number of models to estimate the fair value of stock options,” a fact sheet released with the bulletin said. “The staff will not object to reasonable fair-value estimates made in good faith ... even if subsequent events indicate other estimates would have been more accurate.”
Rick White, president of the International Employee Stock Options Coalition, said that “while we continue to believe that FASB’s mandatory expensing standard is fundamentally flawed, it appears at first blush that the SEC is trying to address some of the problems with the standard.”
Still, he said, “given the more than 60 pages of very technical and complex guidance, we believe the June 15, 2005, deadline for implementation remains unworkable.”
At the National Venture Capital Assn., President Mark Heesen said the SEC “has begun to address some of the issues that public companies will face in implementing this accounting standard.” But he said the SEC also should focus on the problems smaller companies face with options expensing, “and issue additional guidance in support of these companies.”
