FASB Exposure Draft on accounting for stock options is 'bad

Stock plan accounting principles now come mainly from APB 25, issued in 1973 by the FASB's predecessor. The FASB has been studying the option area for about 10 years and during that time, support has been growing for "fixing" APB 25. The proposed exposure draft does fix it by eliminating both of its distinctions and creating an internally consistent framework for all stock compensation accounting. The company's role in the option transaction is limited to that of agent. More important, never does anything resembling a cash expense occur. When the shareholders grant options, they transfer economic rights to employees. These rights have no market. While their value can be estimated by simulating market conditions, the accuracy of these estimates cannot be measured, since it undoubtedly varies a great deal from one situation to another. The FASB's apparent confusion on this point may stem from the frequent use of the term noncash charges in the financial markets. The FASB has been trying to make accounting statements more useful in determining a company's economic value.