Options Fix Needs Fixing

Ten years ago, the Financial Accounting Standards Board was in a battle over employee stock-option accounting. It wanted companies to expense the options' fair value, and a vocal and powerful contingent from Corporate America, especially technology companies, thought this was a bad idea. FASB suddenly withdrew its proposal and replaced it with a "disclosure-only" requirement. A decade later, the battle is on again, fueled by Enron and other accounting debacles. In December 2004, FASB-determined not to back down this time-issued Statement No. 123r, requiring expensing of employee stock options at fair value. FASB went through with this, even though there is still mighty opposition, and still the specter of congressional intervention. FASB's accounting relies on outdated theory that may have reflected the thinking of 10 years ago, but has lost relevance. FASB now requires companies to value options once and then ignore future changes in value.