The Financial Accounting Standards Board has promised guidance on a topic that has had stock plan administrators in a virtual panic for over a month.
Under language in FASB's expensing standard related to the valuation of stock options, the date that the options are approved by a company's board of directors would not necessarily be the grant date. Instead, the grant date would be the date at which an employer and an employee reach a mutual understanding of the key terms and conditions of the award.
The wording could have caused a serious logistical challenge for many public companies. That’s because companies typically prefer to communicate grants with employees during a personal, one-on-one conversation—FASB’s wording would have made valuation of a single group grant unnecessarily complicated by creating various grant dates. This would have been especially painful when the grants involved many employees spread across multiple locations.
Welk
Which explains the outspoken protest from stock plan administrators. “It came on like a fireball,” said Thomas Welk, a partner with the law firm of Cooley Godward in San Diego. “But we’re hoping to be settling down just as quickly.”
Welk credits the National Association of Stock Plan Professionals with calling FASB’s attention to the potential administrative nightmare. According to Welk, the NASPP lobbied for FASB to restate the valuation requirement so that the grant date could be set to coincide with the date the company—via its board of directors or compensation committee—agrees to grant the options.
In a meeting this past week, FASB board members agreed the request was reasonable and promised to expose proposed guidance for comment as quickly as possible, Welk said. The guidance is expected to say companies can set a single grant date based on when the board or its compensation committee approves the grant, provided employees have no ability to negotiate the key terms and conditions, and provided the grant is expected to be communicated to the employee in short order.
“As a practical matter, companies will have a huge sigh of relief,” Welk said.
Compliance Week will follow this issue for subscribers and provide details on the FASB guidance in its next edition on Tuesday, Sept. 27, 2005.
FASB Takes Up Interim Reporting Guidance
The Financial Accounting Standards Board recently determined it will add questions about interim financial reporting guidance to its long-term project on how to improve financial reporting.
The Board plans to examine which financial statements, if any, should be required to be presented in an interim financial report, and whether and how financial statements required in an interim financial report should be allowed to be condensed. The Board also will consider whether guidance should differ for public versus private companies and what requirements should exist for presenting comparative periods.
The project on financial reporting is a long-term endeavor in tandem with the International Accounting Standards Board that seeks a fresh view on how best to report financial performance, said Dennis Beresford, former FASB chairman and accounting professor at the University of Georgia. “They’re starting with a clean sheet of paper and asking, 'What’s the best way for companies to report?'” he said.
FASB has an ambitious agenda planned for this week, with plans to:
Review comments on its proposed position on accounting for rental costs during a construction period;
Consider whether to begin a new project on providing disclosure guidance for entities that offer nontraditional loan products; and
Decide whether to offer more guidance on accounting for the tax effects of share-based payments in light of new expensing rules, among other matters.
The board’s advisory body, the Financial Accounting Standards Advisory Council, also will meet this week to discuss agenda-setting priorities, postretirement benefits, and ongoing projects on the conceptual framework, derivatives disclosures and fair value measurements.
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