FASB Debates Treating Options as 'liability'

[papau]

http://ap.tbo.com/ap/breaking/MGBVBN6N1YD.html

FASB Debates Treating Options as 'liability'
By Lingling Wei
The Associated Press

NEW YORK (Dow Jones/AP) - The debate over expensing employee options has progressed beyond "if." It's now about "how."
And in this arena, it's the "liability" supporters, led by some Wall Street analysts, squaring off against the "equity" advocates, namely the accountants.

At a meeting Wednesday, the Financial Accounting Standards Board reaffirmed the basis for classifying stock-option pay as equity, not a liability. That decision effectively ruled out the possibility that companies would be allowed to adjust options expense to reflect how much employees actually get. That is because the only way that companies could make such adjustments is through booking options as liabilities on balance sheets.

But some analysts may still crunch their numbers using the liability approach. The reason? They argue that employee options represent a form of "economic liability" because a company has promised to sell its stock to employees at a set price at some point in the future. So the actual cost to shareholders is the gap between the strike price of the options and the higher price of the stock at the time the options get exercised.

Because of this, the analysts say companies should book options as a liability, instead of equity. That way, the liability would change as the value of the options moved with the stock price, and companies would reflect those changes on income statements. As equity, the value wouldn't change.

David Zion, an accounting analyst at Credit Suisse First Boston, says this liability approach would enable companies to account for changes in the value of the options over time. But if the accountants don't think that stock options are liabilities, what should analysts do? "Well, we say treat the options as a liability anyway," Zion notes. <snip>


http://ap.tbo.com/ap/breaking/MGBVBN6N1YD

[swag]

1. auto-delete. my apologies

[German-Lefty]

2. I vote for the liablity version

It might discourage executives inflating stock prices in the short run, to cash in their options.

It is a liablity. Especially if a company issues more call options than it has stock on reserve (not sure if it happens).

Issueing options is risky to a company. It's stock price can jump around.

Is a company's stock reserve considered an asset?!?