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FASB Proposes Firms Expense Stock Options; Aims To Boost Transparency.(A)
Byline: NICK TURNER
That noise you hear could be the sound of shrinking bottom lines.
The Financial Accounting Standards Board recommended Wednesday that companies treat employee stock options as an expense in 2005. If enacted by FASB, the proposal would put a sizable dent in the earnings of public companies -- especially tech firms -- at least on paper.
This year's estimated earnings per share for the S&P 500 would fall 7.4% under the new rule, Standard & Poor's reported Wednesday. Earnings would be $48.45, a drop of $3.85.
FASB's proposal came as no surprise. And the costs of stock options have long been noted in the footnotes of financial statements. Still, observers say, making the costs explicit could jar a few investors.
"We may get a few irate phone calls from people wondering why earnings took a dive," said David Blitzer, managing director of Standard & Poor's investment services. "But the vast majority should have seen it coming."
FASB's proposal would treat all stock-based payments to employees as a form of compensation. And that compensation would have to be recognized as a cost in the income statement.
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