FASB was still explaining in a recent press release its 1995 standard of stock options and also tentatively approving three different transition methods for reporting stock options as well as adding additional disclosure rules for such options under that standard.

In the release, it readily admits it didn't adopt the best approach in FASB Statement No. 123, Accounting for Stock-Based Compensation. "When the FASB developed FAS 123 in the mid-1990s, the Board proposed requiring that treatment because it believed that this was the best way to report the effect of employee stock options in a company’s financial statements. The FASB modified that proposal in the face of strong opposition by many in the business community and in Congress that directly threatened the existence of the FASB as an independent standard setter."

While the International Accounting Standards Board (IASB) plans to issue a proposal that would require companies using IASB standards to recognize, starting in 2004, the fair value of employee stock options granted as an expense in arriving at reported earnings, the FASB doesn't appear willing to change its stance. It seems to be fiddling around with the transition and disclosure provisions of FASB Statement No. 123. Their proposal, as currently planned, still does not require entities to adopt the fair value recognition of stock options.

I wonder how much attention the new Public Accounting Oversight Board will pay to the FASB on this matter. FASB is offering two different diametrically opposite methods for reporting stock options, one with three different variations, plus a footnote disclosure requirement. It looks to me as if despite the public and investor uproar, and resulting Sarbanes-Oxley legislation, FASB still hasn't understood that the writing of standards for financial reporting in this manner gives companies tools to effectively hide desired and much needed information from investors.

I expect the Public Accounting Oversight Board will have none of this and quickly send signals to public companies and investors alike beginning with a requirement for the uniform reporting of stock options as an expense.


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