Norwalk, Conn. (April 1, 2004) -- The U.S. moved closer to expensing stock options this week, as the Financial Accounting Standards Board unveiled its much-anticipated exposure draft on share-based payments.

As expected, under the accounting rule maker's controversial proposal, all forms of share-based payments to employees, including stock options, would be treated as an expense in the company's income statement. The expense would be measured at fair value at the grant date.

The proposed change comes one year after the board added the project to its agenda, and nearly a decade after the board's attempt to push through a similar plan was thwarted by lawmakers.

The board says the new rule is aimed at providing investors with more transparent information. Under existing accounting rules, expenses related to so-called fixed-plan employee stock options only need to be disclosed in the footnotes to the financial statements. If approved, the new rule would be effective for public companies for fiscal years beginning after Dec. 15, 2004.

Much of the controversy surrounding option expensing stems from the difficult issue of valuation. Some opponents of mandatory expensing contend that a common option valuation model, Black-Scholes, isn't accurate. While the board didn't mandate the use of a one particular valuation model in the ED, it designated lattice models, such as the binomial method, as the "preferable" method.

The proposal would bring U.S rules on options closer to convergence with international accounting standards. Both the International Accounting Standards Board and the Canadian Accounting Standards Board recently issued requirements to expense stock options. As the debate over options has raged, many public companies in the U.S have already begun treating stock options as an expense, and others have said they plan to do so.

“We expect the proposal will draw interest from a broad spectrum of respondents, including small and non-public companies,” said FASB chair Robert H. Herz.

Public comments on the exposure draft, which is posted online at, are due by June 30, 2004. The board said that it plans to hold public roundtable meetings to gather input on the proposal.

-- WebCPA staff

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