Share-based payments rule is finalized, finally.

• Author: Marshall, Jeffrey
• Position: Financial REPORTING

For all the sturm und drang that has crashed around the stock options expensing issue, the FASB is sailing resolutely ahead. The final rule to require fair-value assessment and expensing of stock options was to be published in December 2004, as a replacement of FAS 123, Accounting for Stock-Based Compensation. The effective compliance date for larger public companies is for periods beginning after June 30, 2005.

The new rule will bring to a close a decade in which the board had effectively allowed--though hardly encouraged--companies to continue to abide by APB 25, Accounting for Stock Issued to Employees (issued in 1972), which permitted use of an intrinsic valuation scheme for options that didn't impact earnings. During that time, the tech bubble drove up the value of options (at least on paper) at many companies to stratospheric heights, only to see untold millions of those options become effectively worthless when the affected stocks collapsed.

Following the issuance of an Exposure Draft last March 31, FASB listened and listened and then listened some more, holding a series of four roundtables in Palo Alto, Calif., and its Norwalk, Conn., headquarters. It considered more than 13,000 comments letters, split fairly evenly between pros and cons; technology companies remain the fiercest critics, with investor letter-writers generally favoring the change.

The accounting board concluded in its various redeliberations that the world needs a common way to fair-value and record option-related expenses. Its final rule will align closely with that formulated last March by the International Accounting Standards Board (IASB) and recognizes that some 500 U.S. companies--many of them household names--have voluntarily elected to expense options since 2002. Two abiding FASB concerns...