Expensing Stock Options May Be A Must Beginning Next April

By John S. McClenahen Companies that give stock options to their executives and other employees may have to list them as an expense on their income statements beginning in April 2004. Last week, the Financial Accounting Standards Board (FASB), the seven-member group that writes U.S. accounting standards, voted unanimously to require that stock options be listed as an expense. In the wake of the accounting and corporate governance scandals of the past two years, some companies are already doing this. But current U.S. accounting rules, in effect since the 1990s, give companies the alternatives of recording the value of stock options as an income-statement expense or, as many more companies have done, including a footnote in the company's financials to indicate what earnings would have been had the options been accounted for as an expense. The FASB expects to issue a so-called exposure draft on the expensing of stock options by the end of this year. Presumably, this proposed standard will outline a means for determining the fair value of stock options on the date they are granted. If the board makes its yearend date for proposing the standard, the rule could take effect in April of 2004, says a FASB spokesperson.

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