Lawmakers Lean On FASB for Accounting Rules
By MIKE MASON
Accounting for stock options is a hot topic.
Should they be charged as an expense or remain off the earnings statement?
If you’re a tech company executive, you probably think that charging options against earnings will hurt innovation in the industry. That’s because it will make it harder for companies to afford to dangle options as a perk for job candidates.
But if you’re an investor you might think, hey, if stock options are going to dilute my stock, and if they trade on an exchange for some value, then it should cost a company something to give them away.
The Norwalk, Conn.-based Financial Accounting Standards Board was close to ruling in 1994 that companies should expense the value of the stock options they grant. But the standards board caved under intense pressure from a number of sources: the big accounting firms, lawmakers and Treasury Secretary Lloyd Bentsen.
With all the talk about drafting legislation to reform the markets and accounting standards, it’s likely that a lot of the work and recommendations will come down to the standards board.
So who is this group that wields such power?
The Financial Accounting Standards Board has been setting the generally accepted accounting principles for U.S. public corporations since 1973. These guidelines set out financial accounting rules and govern financial reports.
While the Securities and Exchange Commission has legal authority to establish financial accounting and reporting standards under the Securities Exchange Act of 1934, the fact is, it doesn’t.
The commission’s policy has been to rely on the private sector,that means the Financial Accounting Standards Board,for setting accounting standards. At least as long as the private sector shows that it’s fulfilling its responsibility to the public interest.
With that in mind, the Financial Standards Accounting Board met July 10 to set out its priorities for the second half of the year. Following is what the board hopes to accomplish:
n Revenue recognition,The Board agreed with the staff-recommended objective of completing the database of existing revenue recognition guidance and practices (bottom-up phase) and the working criteria for revenue recognition by the end of 2002.
n Consolidation of certain special-purpose entities,The Board affirmed its goal of issuing a final interpretation on consolidation of certain special-purpose entities by the end of 2002
n Liabilities and equity,The Board affirmed its year-end goal of completing redeliberations of the proposed change to the definition of liabilities and reaching a decision about whether to issue a limited-scope statement implementing any change to certain financial instruments
n Reporting financial performance,The Board will continue to deliberate the basic principles tentatively agreed to by the International Accounting Standards Board in its project on reporting financial performance in preparation for the joint meeting between the Financial Accounting Standards Board and the International Accounting Standards Board on September 18, 2002
n Business combinations,The Board affirmed its goal of issuing an Exposure Draft reflecting the decisions reached on its project on purchase method procedures by the end of 2002
n Codification and simplification,The Board established a goal of completing a document describing what it means by “principle-based” standards for distribution to and discussion with constituents by the end of 2002. That document also would describe how the process of setting accounting standards and those involved in that process would need to change if the United States is to move toward issuing standards that are less rule based
n Guarantor’s accounting for guarantees,The Board affirmed its goal of issuing a final interpretation on guarantor’s accounting and disclosure requirements for guarantees, including indirect guarantees of indebtedness of others by the end of 2002.
