SEC Speaks Stock Options; Holdouts React

As noted previously, the SEC’s Office of the Chief Accountant released Staff Accounting Bulletin No. 107 regarding crypto Custodian Statement No. 123 (Revised). It’s a good faith effort by the SEC to address the concerns of registrants who are perhaps flummoxed by the new accounting standard; in fact, it reads like a “Frequently Asked Questions” document. Plenty of topics within the topic of share-based payment, filled with questions and fact patterns that registrants should be able to adapt to their own circumstances.
[One oddity: the SAB contains over 13 pages of discussion on computing the volatility input for option pricing models. This is a concern now? What were companies doing when they were computing volatility inputs for making the Statement 123 pro forma footnote disclosures over the last nine years – using a ouija board? Or the random number generator function in Excel? It makes you think those professors looking at the quality of footnote information were really on to something.]
The guidance offered extends to the questions about the possible next wave of pro forma reporting – how to handle Statement 123 expense in press releases. (Yes, it can be pro forma’ed away in press releases if it reconciles to the GAAP figures. No, firms cannot do the same in SEC filings.) Within 8 pages of guidance on estimating the expected life of options, the document even offers a shortcut that the Commission will allow when it comes to calculating the expected life: firms will be permitted to take the average of the vesting period and the contractual option life to determine the expected life. (Can’t see why that’s a real answer. And there’s that nagging question again: what were companies doing when they were computing expected life inputs for making the Statement 123 pro forma footnote disclosures over the last nine years?)
The document doesn’t break new ground; it’s very much keyed in to Statement No. 123(Revised) itself, not a refutation of the document. You could call it “Frequently Asked Questions About Statement No. 123 (Revised) instead of SAB No. 107.
And that’s why these guys are unhappy. And these guys. And these guys. (That’s more redundant than it sounds. The AeA and the Semiconductor Industry Association are both trade members of the International Employee Stock Options Coalition. Instead of one voice, it’s more of a three-part harmony of invective directed at the SEC for not damaging the new accounting standard.)
The International Employee Stock Options Coalition griped that “Given the more than 60 pages of very technical and complex guidance, we believe the June 15, 2005 deadline for implementation remains unworkable. On top of the extensive responsibilities and obligations imposed by Sarbanes-Oxley that remain ongoing, we believe that good policy and common sense warrant a delay in the implementation date.”
Again: much of the document relates to issues that companies should have had a handle on for nine years. The document is not breaking new ground. Complaints like these are nothing more than a continuation of the high-tech’s stall strategy – while they wait for friendly legislation to be acted upon in Congress. (Friendly legislation to them, that is. Which would be very investor-unfriendly.)