Flexibility added to stock option expense rules

Wednesday, March 30, 2005 | 9:05 a.m.

The Securities and Exchange Commission Tuesday gave companies wide latitude in calculating the expense to be recorded for stock options issued to executives and other employees. The move may enable companies to keep reported costs low as they adapt to an accounting rule that requires options costs to be treated like any other expense.

"They are allowing a lot of flexibility in the accounting," said Michael A. Moran, an accounting analyst at Goldman Sachs. But, he added, the SEC also made it clear that it expected companies to disclose details about what they did, to make it possible for investors to evaluate the accounting.

The SEC action, explained in a staff accounting bulletin, means that similar options plans at different companies may produce widely varying expense reports, making it difficult to compare financial statements. But the commission said that while it was accepting such variance at the beginning, over time "the staff anticipates that particular approaches may begin to emerge as best practices and that the range of reasonable conduct, conclusions and methodologies will likely narrow."

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