As if to continue the angst and agony of waiting, the Securities and Exchange Commission recently postponed the compliance date for the application of the Financial Accounting Standards Board's Statement 123(R), "Share-Based Payments."The SEC ruling allows companies to implement the statement, which requires them to expense stock option compensation, at the beginning of their next fiscal year instead of in their first interim or annual period that begins after June 30, 2005, or, for small companies, after Dec. 15, 2005.

The commission's decision, however, in no way affects the accounting required by Statement 123R, nor does it allow smaller companies any more time than larger companies.

SEC chief accountant Donald T. Nicolaisen said that the postponement was made in deference to public companies that were complaining of the complications of changing their reporting in the middle of a fiscal year just as they were burdened with other new compliance issues, such as those of the Sarbanes-Oxley Act.

Nicolaisen added that implementing the new standard at the beginning of a fiscal year would allow auditors to conduct "more consistent audit and review procedures."

Pros and cons

The decision has drawn disparate reactions from opponents and proponents of the accounting rule.

"There are still some open questions on implementation, and clarifications are needed," said Jeffrey Peck, lead consultant for the lobbying firm Griffin, Johnson, Madigan & Peck, which represents the International Employee Stock Option Coalition. "The SEC has responded at least once now, but to many people, there are still issues to deal with, and we hope to have a constructive dialogue with the SEC to get those resolved ...The situation with the SEC is different from the situation with FASB, where there was never a real effort to keep an open mind and consider the issues. I think the SEC is much more sensitive to these implementation issues."

Barbara Roper, director of investor protection of the Consumer Federation of America, expressed dismay over not only the delay, but the relentless efforts to reverse or change a decision that was 10 years in the making.

"I fail to understand how it can be so complicated for companies to move information out of the footnotes and onto the financial statement and why that is a process that requires repeated delays," Roper said. "I very much fear that opponents of the rule, who will never be satisfied simply with delay, will use the time to try to get the rule overturned in Congress."

The SEC's push-back follows a similar six-month delay allowed by FASB last year. That delay was also to help companies make the accounting transition, with extra time granted to smaller companies.

Critics of the SEC decision allude to the fact that several hundred companies had been voluntarily expensing options while complying with the mandates of Sarbanes-Oxley.

Proponents of the new accounting rule expressed concern that the SEC decision was a precedent in which, for the first time, the commission stepped in to override a FASB decision, apparently in response to intense lobbying by the high-tech sector.

The lobbying has impacted Congress as well.

Last year, H.R. 3574 - the Stock Option Accounting Reform Act, a bill that would have required the expensing of stock option compensation only for a given company's top five recipients - was passed by the House but did not reach a vote in the Senate. The bill expired with the elections of 2004, but a similar bill has been introduced in the House again.

Meanwhile, the divisive issue of stock option expensing has been on FASB's agenda since the early 1990s.

Fierce pressure from the corporate and public accounting sectors, culminating in a non-binding Senate decision asking the board to drop the project, caused the board to back off from its intention of requiring the expensing of stock options.

Rather than require expensing, the board required only that the hypothetical effects of such compensation be disclosed in the footnotes of financial reports, with actual expensing allowed for companies that chose to do so.

Opponents of the standard say that the calculation methods that FASB recommends are inaccurate and produce incomparable results. Analysts tend to disagree, having long been using such methods to adjust financial reports to reflect the true cost of unexpensed stock option compensation.

The International Accounting Standards Board is expected to set a standard similar to FASB's. The two boards are trying to converge U.S. and international standards. Non-American companies have shown less interest in blocking the international standard, though the coalition does claim some support in Europe and Australia.

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