The Securities and Exchange Commission

[thepennyking]

FASB Proposes Expensing of Stock Options

The Financial Accounting Standards Board today issued an exposure
draft that addresses the accounting for share-based payment transactions in
which an enterprise receives employee services in exchange for (a)
equity instruments of the enterprise or (b) liabilities that are based on
the fair value of the enterprise's equity instruments or that may be
settled by the issuance of such equity instruments. Proposed Statement of
Financial Accounting Standards: Share-Based Payment (Mar. 31, 2004).
The proposed statement generally would require that companies account
for share-based compensation transactions, such as a grant of stock
options, using a fair-value-based method (i.e., valuation at the amount at
which an asset could be bought or sold in a current transaction between
willing parties). It would reject the practice, currently used by a
majority of companies, of valuing stock options at their intrinsic value
(i.e., the amount by which the fair value of the underlying stock
exceeds the exercise price of an option). Since most stock options have a
fair value but no intrinsic value when granted, the majority of
companies currently do not book stock option grants as an expense.

Comments on the exposure draft are due by June 30, 2004. The proposal
is the most controversial ever made by FASB, and a large number of
comments is expected. The exposure draft contemplates that the proposed
statement would be applied to public entities (and nonpublic entities
that had adopted the fair-value-based method of accounting for recognition
or pro forma disclosures) prospectively for fiscal years beginning
after December 15, 2004, as if all share-based compensation awards granted,
modified, or settled after December 15, 1994, had been accounted for
using the fair-value-based method of accounting. Other nonpublic
entities would apply the proposed statement prospectively for fiscal years
beginning after December 15, 2005. The exposure draft is available online
at

http://www.fasb.org/draft/ed_intropg_share-based_payment.shtml