A top Securities and Exchange Commission official said yesterday that granting companies more time to prepare for a controversial accounting change related to employee stock options is an idea that deserves "consideration."
SEC Chief Accountant Donald T. Nicolaisen said that further delaying a new plan that requires companies to treat stock options as an expense on their books might help companies and auditors that already are having trouble meeting deadlines for stringent new accounting rules.
Starting in June, companies for the first time will be required to account for options, or the right to buy stock at a set price and during a specific time frame, as an expense on their financial statements. Accounting experts say stock options are an important form of compensation, and they should be treated the same way as salary and bonuses on company financial statements.
Technology companies, which made heavy use of options as a recruitment and retention tool, have fought the move bitterly because it would slash their reported profits. The House of Representatives last year passed a bill 312 to 111 that would have derailed the expensing plan. But the measure got nowhere in the Senate.
Any delay in implementing the standard would require the approval of the SEC's commissioners. The Financial Accounting Standards Board, which sets accounting standards, already has agreed to push back the effective date of the expensing plan once, from January to June 2005.
Steven Getz, a spokesman for the standards-setting group, said "there has been no board discussion" of an additional delay. Several SEC commissioners did not return calls about their plans.
But technology trade groups argue that the complex issues come on top of already heavy burdens under the Sarbanes-Oxley Act, which requires companies to assess the strength of their fiscal controls.
"Common sense and good policy would suggest a delay in the implementation date," Jeff Peck, lead lobbyist for the International Employee Stock Options Coalition, said. "It's in the SEC's hands, and I hope they see it in a reasonable way."
The call for additional delay came on a day when the SEC staff issued guidance that tells companies they can employ any one of several methods to value stock options on their books.
"As long as you apply reasonable judgment and act in good faith, it should satisfy our requirements," the SEC's Nicolaisen said.
The 64-page SEC guidance is designed to ease fears expressed by some executives that they could face lawsuits for using alternative models for valuing options.
Nicolaisen said agency staff will monitor how companies are reacting to the standard and may issue more guidance in the weeks ahead for companies seeking advice on how to disclose the process by which they value stock options in their financial statements.
Sen. Richard C. Shelby (R-Ala.), chairman of the Senate Banking Committee and a supporter of options expensing, yesterday praised agency staff for their flexibility.
"Their efforts to address and clarify practical technical implementation issues will help ensure that the public receives fair, accurate and objective financial information in a timely manner," Shelby said in a statement.
