Yesterday, the SEC's Office of the Chief Accountant issued a press release and a letter to the FEI and AICPA on accounting for stock options.
The SEC noted the use of APB Opinion 25, which was followed by many public companies until the revision of FAS 123 in 2004. The letter from the Chief Accountant addresses questions of whether the determination of the measurement date under APB Opinion 25 was appropriate.
The letter states, "many of the issues that have been raised in public disclosures or uncovered in reviews of option granting practices resulted in the grant of in-the-money options . . . . On the other hand, there may also be situations where an at-the-money grant was actually decided with finality, but there were unimportant delays in the completion of administrative procedures to document the grant that did not involve misrepresentation of the option granting actions. . . [S]hort delays in completing the administrative procedures to finalize the grant would not result in an accounting consequence."
The letter gives two specific examples of the types of actions that would not have accounting consequences and would not result in granting of in-the-money options. These are:
(1) award upon receipt of oral authorization from the committee, with documentation to follow at a later date; and
(2) award pursuant to policies or parameters previously authorizing actions of subordinates with appropriate approvals obtained at a later date.
The letter notes (in bold)"If a company operated as if the terms of its awards were not final prior to the copmletion of all required granting actions (such as by retracting awards or changing their terms), the staff believes the company should conclude that the measurement date for all of its awards (including those awards that were not changed) would be delayed until the completion of all required granting actions."