Foes of Stock-Option Expensing Rise Again. (Trends in Financial Management)
Levinsohn, Alan, Strategic Finance
* NEW ACCOUNTING FOR STOCK options is a controversy that just won't die.
In mid-March, the Financial Accounting Standards Board (FASB) said it was tackling a project to improve the "accounting and disclosures of stock-based compensation." Then, in April. the Board decided unanimously that stock-option compensation does result in a cost that should be recognized in the income statement as an expense.
But once again, opponents-- primarily from technology companies and their trade associations-- are pulling no punches to stay the FASB's hand. They've formed public policy coalitions to lobby politicians and raise public rhetoric against the required expensing of options. Their reasoning? Expensing of options would put technology companies, many of which rely heavily on stock-option compensation, at a competitive disadvantage and make financial statements more incomparable.
Congressman David Dreier (R.Calif.) and Congresswoman Anna Eshoo (D.-Calif.) introduced a bill in late March to enhance disclosure of stock-option valuation but not change the accounting. In fact, the proposed legislation would prohibit the Securities & Exchange Commission (SEC) from recognizing any new stock-option accounting for at least three years.
"We're going on the offensive here," Dreier told a news conference. He argued that requiring options expensing would slow the economy by effectively eliminating the use of stock-option compensation. The bill would also require the Commerce Department to study the impact of options on economic growth. A similar bill was introduced in the U.S. Senate by Senators John Ensign (R.-Nev.) and Barbara Boxer (D.-Calif.).
But expensing also has supporters in Congress, including Republican Sen. John McCain of Arizona and Michigan Democrat Sen. Carl Levin. Thirty lawmakers wrote to the FASB in February urging the Board to require expensing. IMA member Dennis R. Beresford, FASB chairman from 1987-1997, reportedly said it was "terrible" that lawmakers were intervening in accounting rule making. "They should not get involved in this process," he said. "Congress should let the SEC overlook the process and let the SEC step in if FASB is not serving the public interest."
But public policy coalitions such as TechNet and the International Employee Stock Options Coalition (IESOC) say expensing stock options would curtail their use. Net income would plummet for many technology firms expensing stock options, their share value battered and international competitiveness diminished.
"There's a reason that Silicon Valley exists in the United States and not in some other country," noted Rick White, chairman of TechNet and IESOC, at a press conference in April. …