If the Financial Accounting Standards Board (FASB) has its way, companies will soon have to deduct the value of employee stock options from their profits.

After nearly two years of vetting, the FASB recently issued its final standards on accounting for share-based payments. It's now mandatory for companies to expense the employee stock options in their earnings statements for the fiscal year beginning after December 15, 2005 and January 1, 2006 for calendar year companies. Experts say that the new rule represents another important improvement in the US GAAP and will result in more comparable information in financial statements provided to investors.

As the FASB is not the final authority to finalize the new rule, the Securities and Exchange Commission (SEC) which has the veto power for accounting rules, has extended its strong support to the change. According to Bear Stearns, a leading global investment banking, securities trading and brokerage firm, around 850 companies including about 120 members of S&P 500 have begun or agreed to begin expensing options. Thomas Hutchinson, Senior Vice-President, Research for Integrity Research Associates observes, "The new rule will make progress in addressing contingent liabilities and their relation to the book value balance sheets and standard income statements."

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