The FASB recently released proposed interpretations on key accounting rules on stock compensation issues. Currently stock options granted to employees do not give rise to compensation expense but require that the fair value of the stock option awards be reported in the footnotes on the financial statements. A tentative interpretation by the FASB recently issued is that the repricing of a stock option to employees must be accounted for as a variable plan, leading to recognition of compensation expense from the time it is repriced to the time it is exercised. Such accounting treatment will result in a reduction in reported earnings.
Another interpretation announced by the FASB is that outside directors are not employees and thus options granted to outside directors should result in recognition of compensation expense also.
The proposed interpretations are to be issued in final form in the third quarter. There will be a ninety day comment period.
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