IASB Pushes for Reporting Option Costs

The International Accounting Standards Board (IASB) has issued a discussion draft calling for using "fair value" to report the cost of stock options and other equity plans on a company's income statement. The proposal is not specific on how "fair value" would be calculated, but suggested that on issuance of an award, a company would compute the option's "minimum value" plus part of the option's time value. Presumably, this means that a company would start with the intrinsic value of an award (the difference between the current fair market value and the issuance value). So if a company gave an employee the right to buy stock at current fair market value, there would be no intrinsic value, but if the right were granted at a lower price, or shares were issued free or at a discount, that would be recorded. Then, the company would add to it some measure of the present value of the future right to acquire the stock at that price, adjusted periodically. Heavy opposition is expected to the IASB proposal, particularly in the UK and the US.

For details on the proposal, and to make comments, go to http://www.iasc.org.uk.