Accounting Board Delays Changes in Options Rules

U.S. accounting rule makers Wednesday pushed back the target date for issuing new rules that would force companies to expense stock options, as they began discussions on the controversial topic of how to value such options.

The Financial Accounting Standards Board said it expected to issue a proposed rule in the first quarter next year and a final rule by the third quarter after that.

The board earlier had hoped to issue a proposed rule before the end of this year.

Norwalk, Conn.-based FASB also debated the merits of various models to value stock options, stating a preference for a model other than the widely used but often criticized Black-Scholes method.

The board decided that if the data needed for the so-called binomial valuation model is available, it would produce a better estimate than the Black-Scholes model, a FASB spokeswoman said.

In cases where a company does not have such data (for example, details on the option-exercising habits of employees), then the Black-Scholes model “may be appropriate,” she said.

“This is one of the first times that FASB has given an inclination that another model may be more robust than the Black-Scholes model,” Bear Stearns accounting analyst Chris Senyek said.

Finding an acceptable method to value stock options is a crucial hurdle for the board.

Many of the technology companies that are leading the opposition to formal stock-option expensing argue that options cannot be accurately valued. The companies say that could mean that formal expensing would substantially and unfairly reduce their reported net income, making their stocks less attractive to investors.

“You can’t get through all the way to expensing unless you find a credible, acceptable way to value stock options, and that hasn’t yet been put forward,” said Jeff Peck, who leads the International Employee Stock Options Coalition, which represents companies including Silicon Valley giants Cisco Systems Inc. and Intel Corp.

Tech firms and others have come under attack for heavy issuance of stock options to employees in the 1990s. Critics say the options diluted other shareholders’ ownership, and that failure to count options as an expense is an accounting abuse.