Confusion Reigns Over Stock Option Expensing Law

by Glen Shapiro, LawAndTax-News.com, New York

20 July 2005

According to reports in the US media this week, chaos is reigning following the introduction last month of new rules created by the Financial Accounting Standards Board which require listed firms to expense stock options given to employees.

Taking Microsoft Corp. as an example, the Wall Street Journal reported that of the 29 analysts that cover the software giant, just 15 included the effect of the new stock option expensing rule in their reports to investors.

"We're in the client-service business, and the majority of our clients tell us they prefer a pro forma number without the options impact in there," Michael Masdea, Credit Suisse First Boston stock analyst explained to the business daily.

According to the WSJ, some financial institutions have required their analysts to include the cost of the options in their reports, in an attempt to limit confusion. However, firms which track and report such matters, such as Thomson Financial and Reuters Estimates are reportedly producing consensus earnings estimates based on how the majority of analysts have reached their calculations, creating the potential for a great deal of confusion.

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