FASB Issues Draft Rules for Options Accounting

The Financial Accounting Standards Board (FASB) has issued proposed rules for footnote disclosure of stock options. The new proposal should be made final in July. The value of the options for the disclosure would be either the fair value as of the grant, or, if in "unusual circumstances" this cannot be calculated, the fair value at the first point that can reasonably be calculated. Generally, this exception would apply where terms of the options make it difficult to know how many options will be exercised at what times. Determining a fair value for the options is still likely to be controversial, but footnote disclosure should have a very limited impact on how investors perceive a company's earnings. Many companies continue to argue that only the terms and conditions of the options should be disclosed. The FASB will encourage companies to fully account for the options in their income statements, but few will.