FASB Issues Guidelines on Voluntary Expensing of Options, Issues New Options Disclosure Rules, and Announces Intention to Reconsider Requiring Expensing

As expected, the Financial Accounting Standards Board has issued guidelines on how companies that voluntarily expense options can make the transition from accounting for options under APB 25, which does not require options to show as a cost on the income statement, to FAS 123, which does. FASB will allow companies three alternatives:

1. Start expensing options only for grants from the date the new method is adopted forward
2. Restate income statements for the prior three years, taking into account grants for those years
3. Count only new options and existing unvested options

In addition, as of December 15, 2002, companies must record the expense of options under FAS 123 on a quarterly basis in their footnotes, rather than the annual basis previously required.

Finally, FASB has indicated that next year it will start a reconsideration of whether all companies should be required to expense options.