FASB Posts Options Rule

FASB's new rule seeks to do what the agency failed to complete in the mid-1990s, when it last tried to require options expensing. Under pressure from Congress, FASB dropped the effort and crafted its current standard instead.

But the movement to force expensing gained strength after the recent Enron, WorldCom and other corporate scandals. Many governance experts attributed those fiascos -- at least in part -- to the use of options. Because options reward short-term movements in stocks, they encourage corporate managers to take short-sighted or even illegal steps to boost share prices, critics charged.

Additionally, expensing advocates assert that the current system allows companies to dramatically overstate their earnings by understating their true payroll costs.

In contrast, expensing opponents argue that current valuation formulas are wildly inaccurate and will lead to bogus charges and more confusing income statements. Among the most vocal opponents of expensing are technology companies, which are among the heaviest employers of options.

Opponents also argue that expensing will force companies to abandon broad-based stock plans, which will affect employee morale and companies' productivity. Such expensing opponents have pressed Congress and the SEC to block FASB's rule before it takes effect.

That campaign reached a high point last summer when the House of Representatives voted overwhelmingly to override FASB's then-prospective expensing rule. Since then, the measure to block expensing has been bogged down in the Senate.

FASB previously planned to have companies start expensing options at the beginning of next year. But under pressure from the SEC, it delayed the implementation of the rule. Some expensing watchdogs have worried that the delay will give the rule's opponents sufficient time to try to override it before it takes effect.