The Financial Accounting Standards Board has issued a draft of proposed rule changes for firms voluntarily embracing the fair value based method of stock option reporting. The proposed amendment to FASB Statement No. 123 is designed to:
- enable companies choosing the fair value based method (labeled “preferable” in an FASB statement) to report the full effect of employee stock options in their financial statements immediately upon adoption.
- make available to investors better and more frequent disclosure about the cost of employee stock options.
The proposed changes would provide three methods of transition. In addition, the FASB proposes clearer and more prominent disclosures about the cost of stock-based employee compensation and an increase in the frequency of those disclosures to include publication in quarterly financial statements, according to the FASB statement.
Currently, companies are not required to present stock option disclosures in interim financial statements.
The FASB plans to issue the permanent amendment to Statement 123 by the end of this year and its provisions would be effective immediately upon issuance.
The proposed disclosures to be provided in annual financial statements would be required for fiscal years ending after December 15, 2002. The proposed disclosures to be provided in interim financial information would be required as of the first interim period of the first fiscal year beginning after December 15, 2002, with earlier application encouraged.
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