FASB Finally Passes Stock Option Rule

Late December 2004, the FASB finally adopted FASB Statement No. 123, “Accounting for Stock-Board Compensation”, which basically supersedes the older rule, APB. No. 25.

The statement basically focuses on the transaction where an employee renders services for share-based payment transactions. Rather than just disclosing the “value” of the option in the footnotes, our clients will now need to book the cost of the services in exchange for the reward on the grant date into their financial statements. The costs will be recognized over the period in which the employee is required to render services.

For our non-public clients, if you are unable to estimate the fair market value because you do not know your company’s volatility of your share price, you are supposed to calculate the value using the historical volatility of your appropriate industry sector. For non-public companies, this newly revised pronouncement is effective for annual reporting periods beginning after December 15, 2005.

Please contact our emerging business/technology group should you wish to discuss the impact to your company and if you require assistance in the calculation. Please call Jeffrey D. Solomon at 781-453-8700, extension 330, or e-mail jsolomon@lknscpa.com.

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