EU Adopts Stock Option Expensing Rules

February 7, 2005 ( - The European Union has adopted new accounting rules that will require European-listed companies to expense stock option awards.

The head office of the EU has decided that the new rules will apply retroactive to January 1, according to the Associated Press (AP). The standards, which preempt their American counterparts by nearly six months, are part of a larger reform of business accounting standards undertaken by the EU to combat fraud and mismanagement, according to the news agency (See FASB Releases Stock Option Expensing Rule ).

The new rules will apply to about 8,000 European companies. Many, as in America, feel that new accounting rules requiring that stock option expensing will cut into profits, with the technology and telecommunications industries expected to be affected the most.

Some European companies were pushing to have the rules implemented at the same time – June 15 – as the American rules, according to the AP. Regulators, however, have pushed the move to get an advantage over the US, and to increase transparency and boost investor confidence.

Accounting experts representing all 25 EU governments endorsed the rule in December, but the move had to be approved by the group’s Parliament and Commission before becoming law, according to the AP.