The Financial Accounting Standards Board may delay a rule requiring stock options to be counted as an expense because companies face deadlines to implement other rules.
"We may need more time," FASB Chairman Robert H. Herz said at a press conference yesterday at the regulator's Norwalk, Conn., headquarters. "We are hearing people say they are stretched to the maximum." Herz made his comments after a roundtable discussion of investors, executives and accounting industry officials.
Donald T. Nicolaisen, chief accountant for the Securities and Exchange Commission, said the FASB should consider waiting until 2006 to make options expensing a requirement because companies and auditors are busy complying with Sarbanes-Oxley, the law Congress passed in 2002 after accounting blowups at Enron Corp. and WorldCom Inc.
Companies already face a year-end deadline for putting in place new financial control systems under that law. "Everyone is on very tight timetables right now," David Kaplan, a managing director at PricewaterhouseCoopers, said in an interview. "We are recommending the proposal be pushed back six to 12 months."
Proponents of the rule say it is necessary to give investors a true picture of a company's finances. If counted as an expense, some companies that use options heavily would report losses instead of profits. Hundreds of companies have volunteered to start counting options as expenses in the past few years.
Patrick McGurn, a senior vice president at Rockville's Institutional Shareholder Services Inc., a proxy advisory firm that supports expensing options, said he is prepared to "take FASB's word" on the reason for the potential delay. But, McGurn said, any delay "simply opens the door to further lobbying" against the plan by technology companies.
The FASB's options-expensing rule continues to be opposed by many technology companies, which are among the largest users of the stock grants.
"Certainly any delay is a good thing from our perspective," said Jeff Peck, chief lobbyist for the International Employee Stock Options Coalition, which includes many technology companies and has been fighting the rules. "The more important question is, what's the delay being used for?"
Peck said his group wants the accounting standards board to "start from square one" and reexamine how companies should value the options on their books.
The House Financial Services Committee voted 45 to 13 earlier this month to approve a bill that would stop FASB in its tracks while federal agencies studied the consequences of expensing options. The full House has not yet scheduled the bill for a floor vote.
Several key senators, including Banking Committee Chairman Richard C. Shelby (R-Ala.) have opposed congressional meddling in FASB's affairs and said they will block such a bill in the Senate.
The standards board tried a decade ago to require companies to count options as expenses, but withdrew the rule after a heavy corporate lobbying campaign backed by senior members of Congress and finally then-SEC chairman Arthur Levitt Jr., who later called it his biggest mistake.
Dennis Beresford, an accounting professor at the University of Georgia and former chairman of the FASB the last time it considered expensing options, said the board is likely responding to several "practical" considerations.
"My personal best guess would be, it's extremely unlikely the board will be able to finish its deliberations this year anyway," Beresford said. "Everybody is really trying to be practical. I don't think this is any kind of backing down."
Staff writer Carrie Johnson contributed to this report.