Abstract
The Securities and Exchange Commission has stated that it is considering issuing guidance regarding the implementation of FASB's revised Statement 123, which requires firms to use fair value accounting to expense employee stock options. This Panel urges the SEC to give due consideration to the serious technical obstacles and valuation inconsistencies created by Statement 123 (r) and delay implementation until these problems have been resolved.
In the Panel's view, the public interest requires that shareholders and potential shareholders have the best possible information regarding the impact of the issuance of employee stock options on the value of the firm and its outstanding shares. In light of the issues that our Panel has studied in its review of Statement 123 (r), we believe that the proposed approach will likely diminish the quality of information available to shareholders.
Moreover, the decision to move the imprecise valuation of employee stock options out of the footnotes of the financial statements and into the balance sheet and income statement implies that employee stock options will be a net cost to the firm and that this cost can be measured precisely and reliably. As this report makes clear, this Panel disagrees with this premise, especially regarding the calculation methods suggested by Statement 123 (r).