FASB 123R Is Good News


I was glad to see a positive article on stock option accounting (“ No Longer an ‘Option, ’” JofA , Apr.05). Lost in all of the discussions of valuation models and politics is the fact that FASB Statement no. 123R is good accounting.

My small, private company, due to an innocent clause in its plan document, was required to follow rules-based, variable intrinsic option accounting, repeatedly remeasuring net income for a transaction completed years ago. While we forwardly adjusted financial statements for the past transaction, we did not record a liability for the put option on the issuable shares likely to be redeemed for cash. Imagine a CFO’s having to explain this accounting rule to his shareholders. Imagine also having to explain that while we account for future cash redemptions of a separately maintained stock appreciation rights (SARs) plan, we ignore reporting the similar obligation for future redemptions of the put in the option plan.

Statement no. 123R, combined with forthcoming FASB guidance on liabilities and equity, cures this bad, rules-based accounting, replacing it with a measurement that faithfully represents underlying economic transactions and events. In spite of all of the hoopla about valuation models, my private company—since it issues SARs—has been using fair value anyway. Now, with the newer, better accounting, my shareholders can see in the financial statements the value of the options given up and the expensing of the employee services consumed. Then, in future financial statements, the cash redemption value of the put will be recognized as the fair value changes—exactly as it was with the SARs plan.

For my company Statement no. 123R combined with the liabilities/equity project is an unqualified success, faithfully measuring and reporting the underlying reality.

Those calling for separate accounting standards for private companies should recognize that what may seem useless to them is good, solid work by the FASB for those of us who have suffered through old, arbitrary rules.

E. Anson Thrower, CFO
Contec Inc.
Spartanburg, S.C.


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