Economic & Business Focus: Get Ready to Expense Stock Options

The FASB is unlikely to back down from its stock option expensing rule, and Congress is unlikely to muster the votes to stop it.

In response to a decade-long push by the Financial Accounting Standards Board, more than 750 publicly traded companies now voluntarily expense stock options, and an upcoming FASB rule would require the laggards to join them. But a group of influential businesses, concentrated in high-tech industries, has convinced some members of Congress that mandatory expensing will force them to lay off workers and send more jobs overseas.

The intensive lobbying effort by these organizations netted a win for an anti-expensing bill in the House of Representatives at the end of the last session of Congress. The issue is now before the Senate, where it may or may not be settled before the FASB's implementation date, June 15, 2005.

Not only would the legislation under consideration undercut the proposed FASB rule, but it would also run counter to new expensing requirements of the International Accounting Standards Board (IASB) and would throw into limbo the progress that has been made toward IASB/FASB convergence on accounting standards. The Congressional challenge to the FASB's independence and authority has implications that run far beyond U.S. borders.

Forces have amassed in the Senate to support the FASB and block attempts to truncate the expensing rule. Most experts are betting that the FASB will prevail. The board intends for the rule to go into effect for all fiscal years beginning after June 15 of next year. Congressional attempts to modify the FASB proposal have generated some uncertainty, but CFOs should not postpone their efforts to comply with the rule.