FASB Releases Proposed Rules for Accounting for Equity-Based Compensation

On March 31, 2004, the Financial Accounting Standards Board (“FASB”) published an exposure draft, entitled Share-Based Payment, an Amendment of Financial Accounting Statements (FAS) No. 123 and 95 (the “Statement”), that will require accounting recognition of equity compensation costs. The Statement has been the subject of much debate and strong opposition, particularly by technology companies and venture capitalists, while a handful of companies have chosen to expense options in advance of the Statement’s effective date. If the Statement becomes final, employers who follow generally accepted accounting principles (GAAP) and who compensate employees with “share-based payments” (stock options, equity appreciation rights or other equity-based instruments) will be required to recognize such payments as an expense on their income statement using a “fair value” approach. The Statement is likely to affect how employers compensate their executive employees generally, as well as the underlying value of such companies.