FASB: Employee, Non-Employee Stock Options Get Same Treatment

June 19, 2003 (PLANSPONSOR.com) - The Financial Accounting Standards Board (FASB) has determined that stock-option expensing methods will be the same for both employee and non-employee workers.

The issue of differentiation was determined Wednesday when the seven-member accounting rule maker board met to discuss the accounting for stock options awarded to non-employee workers, such as those to whom companies outsource work. At the end of the discussion, the board agreed that a single set of accounting principles should apply to options issued to both employees and non-employee workers, according to a Dow Jones report.

This is just the latest in a series of decision by the FASB regarding stock option accounting.   In May, the board determined that options are a compensation expense that should be recognized on a company’s financial statement. The decision followed last year’s rash of corporate scandals, some of which involved stock option abuses (See   FASB Says Yes to Option Expensing).   FASB Chairman Robert Herz has said he expects the board to release a draft rule on accounting for options as an expense for public comment by the end of this year.

Yet questions still remain on how stock options should be valued, with problems including how to measure such costs prior to the options being exercised by the recipient.   To address these concerns, the FASB’s advising panel of valuation experts – specifically set up to help solve the valuation puzzle – will hold an open meeting for the first time early next month; the board is expected to make related decisions later this summer.

Under current US guidelines, companies can choose to subtract the expense of stock options from their income statements or disclose their theoretical value in the footnotes of their financial statements.