New York (Sept. 16, 2002) -- While most companies think mandatory stock option expensing is inevitable, few have taken action on the issue, according to a survey by Marsh & McLennan Cos. Inc. subsidiary Mercer Human Resource Consulting.

While 87 percent of nearly 200 U.S. employers polled said they believe that option expensing will be mandated in the United States within five years, only 37 percent have formally considered the issue at the executive or board level, Mercer reported.

Under current rules, companies aren't required to expense stock options that they grant to employees. The Financial Accounting Standards Board proposed making option expensing mandatory back in the mid-1990s, but dropped the plan in the face of major backlash from the business community and Congress. A string of corporate accounting scandals and a subsequent declaration by many large firm, such as Coca Cola and H&R Block, that they will voluntarily expense options in an effort to improve transparency in financial reporting, have brought the issue to the forefront again.

More than half of those surveyed (56 percent) said they are considering the implications, but taking a "wait and see" approach. Other companies say they will begin expensing options when a structured approach or common methodology is approved. One in 10 respondents (9 percent) say they will begin expensing as soon as practical, and 5 percent plan to lobby actively against expense recognition.

While most respondents agreed that options would have to be expensed, they differed on their views of whether it would be appropriate. Only 12 percent of those polled said expensing is "the right thing to do," while 28 percent say an accounting charge for option expense is inappropriate. Others said options should be expensed only if a consistent manner is used by all companies (25 percent), a reliable valuation method can be found (12 percent), or the company wants a tax deduction (2 percent). One-fifth (21 percent) haven't taken a position on the issue yet, Mercer reported.

-- Electronic Accountant Newswire staff

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