FASB Action Suggests Differences from IASB Approach on Options Expensing

In action taken May 7, members of the Financial Accounting Standards Board (FASB) indicated they may take a somewhat different approach than the International Accounting Standards Board on some key issues. On forfeitures, IASB would require companies to estimate forfeitures up front, not allowing revisions for actual experience. Under Statement 123, FASB allows companies to make revisions to compensation costs based on actual forfeiture experience. Options that never vest would never result in a compensation charge. In its May 7 meeting, FSAB indicated it tentatively still preferred its method. Second, IASB would introduce a complex "units-of-service" concept for measuring the impact of vesting rules. Companies would estimate what percentage of shares would be vested across employee categories, then multiply this times the expected "units of service" the employee will provide over a period. That product would then be multiplied by the accounting charge initially estimated. By contrast, Statement 123 allows companies a choice with respect to vesting of straight-line calculations (such as 20% a year for five year cliff vesting) or graded calculations for performance or gradual vesting. Most of the FASB board did not endorse the units of service approach.