Stock option expensing

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Stock option expensing is a method of accounting for the value of share options, distributed as incentives to employees, within the profit and loss reporting of a listed business.

It is an accounting standard thought by several Socially Responsible Investors to improve transparency and accountability, and as such has been adopted by the US Financial Accounting Standards Board (FASB), in its "statement 123".

The fair value of an option may be established by asking a selection of merchant banks to bid for them.

Contents 1 Controversies 2 Practicalities 3 Intrinsic value or fair value 4 Accountabilities of FASB 5 Sources

[edit] Controversies

The adoption of this accounting standard by the FASB has been supported by many of the 'activists' of the socially responsible investment movement. It has been opposed by a range of business leaders.

[edit] Practicalities

Opponents of the system note that the eventual value of the reward to the recipient of the option (hence the eventual value of the incentive payment made by the company) is difficult to account for in advance of its realisation.

[edit] Intrinsic value or fair value

The FASB has moved against "Opinion 25", which left it open to businesses to monetise options according to their 'intrinsic value', rather than their 'fair value'. The preference for fair value appears to be motivated by its voluntary adoption by several major listed businesses, and the need for a common standard of accounting.

[edit] Accountabilities of FASB

Opposition to the adoption of expensing has provoked some challenges towards the unusual, independent status of the FASB as a non-governmental regulatory body, notably a motion put to the US Senate to strike down "statement 123".

[edit] Sources

• FASB statement 123