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ARTICLE · 11 JULY 2005

New Disclosures About Option Expensing

Sullivan & Worcester
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After much debate, expenses related to options and other share-based payments are now required to appear on companies’ income statements. This standard, the Financial Accounting Standards Board’s Statement of Financial Accounting Standards No. 123 (revised 2004), or FAS 123R, is effective for periods ending after June 15, 2005.

United StatesAccounting and Audit
Howard Berkenblit
Howard Berkenblit

Originally published April 2005

After much debate, expenses related to options and other share-based payments are now required to appear on companies’ income statements. This standard, the Financial Accounting Standards Board’s Statement of Financial Accounting Standards No. 123 (revised 2004), or FAS 123R, is effective for periods ending after June 15, 2005. Beyond the complicated and controversial accounting standard itself, public companies must consider the impact of FAS 123R on Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A.1

What should be disclosed outside of the financial statements?

As discussed in recent SEC interpretive guidance, MD&A is meant to present in narrative form a view of a company through the eyes of management, to provide the context within which financial information should be analyzed and to provide information about the quality of, and potential variability of, a company’s earnings and cash flow, so that

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