Stock Option Accounting 
Showdown Ahead

Word came from a “well-placed” and savvy source this week that the international accounting rule makers at the IASB are resolute about getting options expensing to happen. They are also running into little opposition on their playing field. In the first place, there simply aren’t a lot of companies that have no choice but to adopt IASB standards (in contrast to the FASB, whose every official pronouncement must be adopted by all public companies in the U.S.) Then too, option compensation—and abuses thereof--simply aren’t as common in Europe and other parts of the world. 

What’s significant on these shores is that I’m also hearing that the U.S. accounting rule makers at the FASB are resolute about moving in lockstep with IASB. That means they will reopen formal deliberations on options accounting issues with the intention of requiring the expensing of option compensation. What’s more, officials at the FASB’s Connecticut headquarters are reportedly fired up (at least for now) about sticking with the IASB timetable, which could result in U.S. companies having to subtract the cost of options compensation on their income statements as early as next January.  

The accounting regulators are not, however, anticipating smooth sailing for the option-compensation expensing proposal. Presidential candidate and Connecticut Senator Joseph Lieberman clearly hasn’t dropped his long-standing opposition to efforts to make companies reflect the cost of options given to top management and other employees on their books. He has been joined in his fight to preserve Silicon Valley’s favorite goody bag by Wyoming Senator Michael Enzi, who recently sent the attached letter to the FASB, trotting out all of the tech-heavy options lobby’s tired populist rhetoric in defense of using options to raid shareholders’ wallets. Amazing, isn’t it. After Enron, WorldCom, ad nauseum, the politicians still don’t get it: Allowing companies to maintain the accounting fiction that employee stock options have no cost allows them to perpetuate egregious uncompensated transfers of wealth (“theft” in plain language) from their existing shareholders (overwhelmingly) to top management. Or maybe the pols do get it, and are simply making the hard choice to protect a “higher good:” campaign contributions. 

My source doesn’t think the FASB will back down again like they did several years ago when political opposition forced the accounting regulators to fold on similar rules like a house of cards. He thinks the profession’s subsequent disgrace could have a silver lining: “They can't afford to [back down]. My sense is that they will take whatever punch comes along.”  

Now, that would be news. Hope he’s right. 

KMW