Financial Accounting Blog

Friday, October 31, 2003

Stock Options Expense. This Accounting Web article talks about how the Financial Accounting Standards Board has decided that payment of stock options to employees will become a mandatory expense to report come 2005. Stock options have become a popular incentive compensation by more and more companies over the last ten years and the FASB believes it should be reported just as any other compensation should. Most companies are not pleased as they are concerned it will give the perception of a decrease of their net earnings which would make others believe they have become less profitable.

The Financial Accounting Standards Board met on October 29 to put some of the final touches on its decisions towards mandating expensing of stock options just like any other compensation - an issue which has been steadily gaining momentum for over ten years.

The board agreed on the objectives of disclosure of stock option information to help investors better understand the effects of expensing, but has not yet identified specific disclosure requirements.

Currently, most companies still do not expense stock options out of concern for the impact it will have on their profitability. Those companies do, however, need to identify the value of its options in the footnotes of its financial statements.