Volume 8, No. 7


Stock Option Compensation Redux: FASB Mops Up:  Like the poor out-of-towner who wanders into a saloon in the wrong end of town, the Financial Accounting Standards Board unintentionally became party to a barroom brawl when it tried to reform the accounting for stock compensation. In trying to make financial statements reflect the realities of compensation by stock options, the Board stumbled into Silicon Valley's saloon - and got worked over pretty badly. Statement No. 123, the compromise reached by the Board in settling the stock compensation wars of the mid-1990's, did not touch the APB Opinion No. 25 accounting preferred by the vast majority of companies - which is to say, no accounting at all. Yet, as toothless as the business-preferred accounting is in terms of compensation reporting, it has numerous other flaws that have raised "how-to"questions ever since the standard was written. Some of those "how-to" questions involve ridiculously simple questions, such as who might be considered to be an employee, while others involve the popular practice of repricing stock options. All of the repair and maintenance issues surrounding APB Opinion No. 25 would have been non-issues had the accounting suggested in Statement No. 123 been required instead of elective. In an Interpretation of APB Opinion No. 25, the FASB mops up the messy details of the accounting that would have been eliminated.

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