Accounting Bodies Push for Reporting Option Costs

Most members of the International Accounting Standards Board favor an international standard that would require companies to show the cost of options as a charge against current income, much as the U.S. Financial Accounting Standards Board (FASB) proposed to do in the 1990s. Board members acknowledged that it would require a united front to make these changes, as countries not adopting the rules would have a competitive advantage. There was unanimous support for moving ahead on a project to evaluate how to establish such a standard, but no immediate action is expected.

In the U.S., FASB proposed requiring companies to use a formula, such as Black-Scholes, to estimate the present value of outstanding options and report that as a charge against current earnings. The proposal generated intense opposition and a threat of Congressional action, something unprecedented for the accounting body. As a result, companies are now only required to report a charge in their footnotes. International opposition may not be as fierce because option plans play a less significant role in most other countries in both executive and broad-based compensation than they do in the U.S. The IASB cannot impose standards on member countries, but there would be considerable pressure to conform to international norms.