Companies Get Reprieve on Expensing Options
SEC Is Expected to Revise Rules, Overruling FASB; Most Get Six More Months

By Johathan Weil & Joann S. Lubin
April 13, 2005, The Wall Street Journal

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Turns out this isn't the year most companies will have to start expensing employee stock options.

The Securities and Exchange Commission soon is expected to change the effective date for new stock-option accounting rules, so that most U.S. companies would receive a six-month reprieve, according to people familiar with the matter.

An announcement of the SEC's decision could come as early as this week, these people said. The new rules by the Financial Accounting Standards Board, which require companies to include employee stock-option compensation as an expense on their earnings reports, currently are set to take effect for fiscal quarters starting after June 15. The SEC's staff has recommended that SEC commissioners vote to change the deadline, so that the rules instead would take effect for fiscal years starting after June 15.

The rule change would have no impact on companies like Microsoft Corp., whose next fiscal year begins July 1, or Cisco Systems Inc., whose next fiscal year begins Aug. 1. But for most U.S. companies - those whose next fiscal years begin Jan. 1, 2006 - the change would push back the required effective date by six months. Companies still would be allowed to adopt the new rules voluntarily before their respective deadlines, if they choose.

SEC staff members - including Donald Nicolaisen, the agency's chief accountant, and Alan Beller, director of the SEC's division of corporation finance - have been pressing for the change to allow more companies to devote additional time and resources toward understanding the new rules' complex requirements.

The staff's recommendation to delay the rules' effective date has the support of SEC Chairman William Donaldson and is expected to be approved unanimously by the five SEC commissioners, people familiar with the matter said. As of yesterday, the commission was expected to approve the measure without a public meeting, these people said.

The new FASB rules have been delayed once before - by the accounting body itself. In October 2004, bowing to requests by SEC officials and corporate executives, the FASB agreed to a six-month delay in the rules' effective date. This time, FASB officials declined the SEC's request to change the effective date, people familiar with the matter said.

Many companies' finance staffs have been stretched in recent months because of other new accounting regulations taking effect this year. Changing the effective date also would make it easier to compare companies' financial reports. Under the current deadline, all companies would have to start complying with the rules this summer. As a result, many companies would be reporting some of their quarterly earnings this year under the old rules and some quarterly earnings under the new rules.

While a delay would be welcome by many companies, it's almost certain to draw criticism. Many investors have expressed concern that further delays wil breathe new life into high-technology companies' efforts to push Congress to block the new FASB rules. Last year, the House approved a bill to block the new rules, but the rules' opponents so far haven't had any success in the Senate. People involved in the SEC's decision-making process said that agency officials took those concerns into account, but decided they were outweighed by the need to give more companies additional time.