Dismantling the Arguments Against Option Expensing

The Financial Accounting Standards Board, commonly known as FASB, has spoken, voting unanimously to require expensing of stock options. Now FASB is in the rulemaking phase, with implementation of option expensing expected sometime next year.

But a campaign to overturn FASB is already under way with a vengeance. Several dozen politicians -- such as Sen. Barbara Boxer (D., Calif.), Sen. John Ensign (R., Nev.), Rep. David Dreier (R., Calif.) and Rep. Anna Eshoo (D., Calif.) -- have been recruited to thwart FASB's efforts. Legislation has been introduced in Congress to delay FASB action for at least three years to "study" the effects of option expensing.

Tall Tales

As part of the campaign against FASB, options advocates have foisted falsehoods and half-truths on the media. Here are a few gems:

It's mystifying to many as to why the FASB has the foot on the accelerator, speeding to rush this in.

-- Jeff Peck, Washington lobbyist for a coalition working against option expensing

Hardly "speeding," the FASB began reviewing accounting for stock options back in 1984. After many years of considerable debate, FASB attempted to require option expensing in 1993, only to back down in the face of severe pressure from Congress, the Securities and Exchange Commission and hordes of lobbyists backed by the tech industry. Proposed legislation would have pulled accounting rulemaking authority from the SEC and FASB and handed it to a political body. Former SEC Chairman Arthur Levitt decided to cut and run, a decision he now admits was a big mistake.

In assailing the FASB plan to require expensing, stock-option aficionados suggest that economic calamity will result. Cisco (CSCO - commentary - Cramer's Take) CEO John Chambers said, "Jobs would go in the first decade, followed by the companies" and option expensing would be "the engineering and high-tech job export act of 2003."

Sen. Boxer said, "Given FASB's history on stock options, I am not surprised that they ruled to expense them ... however, FASB admits that it doesn't take into account the economic impact of its decision."

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Arne Alsin is the founder and principal of Alsin Capital Management, an Oregon-based investment advisor and portfolio manager of The Turnaround Fund, a no-load mutual fund. At time of publication, neither Alsin nor ACM held a position in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Alsin appreciates your feedback and invites you to send it to [e-mail]. Click here to receive Arne's latest favorite stock picks from his newsletter, The Turnaround Report.