IASB Backs US Option Accounting Treatment

October 24, 2003 (PLANSPONSOR.com) - As the world's accounting rulemakers attempt to reach a consensus on a single set of global accounting standards, the US accounting treatment of stock options has been backed by the International Accounting Standards Board (IASB).

The divergent treatment of stock option accounting had previously threatened the overall effort to synch up accounting standards across the world.   With the IASB’s approval of the US Financial Accounting Standards Board (FASB) regulation, global accountants can now turn their attention to other matters, according to news sources.

FASB standards split the value of stock options granted in the US between corporate liabilities and corporate equity, given that the stock option grant and the actual exercise of the option are separate transactions (See  FASB: Options Are An Expense At Exercise ).  Previously, the IASB had backed an approach that counted stock options as a single transaction included on the corporate balance sheets as income (See  IASB: Share-Based Payment Rules To Stand ).

Details of the approach still up in the air include how the fair value of such options should be allocated between a company’s liabilities and equity.   The staff will now prepare a further joint discussion paper on the different methods for allocation for presentation to the next meetings of the IASB and FASB set for April.    This will come in addition to other accounting proposals being presented at the spring meeting.

“That group has been charged with coming back in April to our next joint meeting with a detailed proposal on major joint projects over the next, say, three-year time frame, including priorities and sequencing,” FASB head Bob Herz told reporters.

The IASB’s acceptance of FASB’s approach bodes well for the overall effort to converge on a singular international accounting standard. With Europe set to adopt a single set of accounting standards by 2005, the heads of the US and Canadian accounting bodies – Canadian Accounting Standards Board ( AcSB ) – have been meeting in Toronto with the IASB, which is in charge of developing the global rules.

However, the trio of accounting groups still has a long road ahead of them before universal standards are accepted.   Other sticking points include rules governing debt classification, fair value in asset exchanges, and inventory costing.