Volume 13, No. 6

 

End Of The Long And Winding Road: No More Free Options  A festering wound has lingered on the body of accounting literature for over half a century: the non-recognition of compensation expense for stock options granted to employees. Many companies have considered the flawed accounting their birthright, particularly those in the technology industries; they have resisted improvements in accounting for the compensation expense with stunning ferocity. Shareholders can only wish that their firms had competed in their respective marketplaces with the same zeal. The free ride is coming to an end. During the gestation of Statement No. 123 in the early 1990's, technology firms skillfully maneuvered Congress into threatening the FASB with its existence. The exposure draft of that standard required compensation expense recognition for grants of stock options; its official, emasculated version required only footnote disclosure of those effects. Nine years after its issuance, FASB is shoring up the limp Statement 123 with amendments that require expense recognition of options, along with a raft of technical improvements. Barring either unexpected fatal flaws in the exposure draft or last-ditch interference from Congress, the exposure draft should result in a final standard around the fourth quarter of 2004, becoming effective in January 2005 for companies with December year ends.

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