SEC Issues Guidance on Implementation of New Accounting Rules for Stock Options

On March 29, 2005, the Office of the Chief Accountant ("OCA") of the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin 107 ("SAB 107," available online, pdf format) to provide clarification of the OCA’s interpretation of Financial Accounting Standards Statement No. 123R ("FAS 123R," available online, pdf format) as it applies to share-based compensation arrangements for both employees and non-employees.¹ Given the administrative complexity associated with FAS 123R’s requirements, the relatively flexible approach to compliance adopted by the OCA in SAB 107 is welcome news as companies consider how FAS 123R will affect the accounting for share-based compensation. Although SAB 107 provides detailed interpretive guidance covering a variety of topics relating to share-based compensation, this Client Alert focuses on the OCA’s approach to fair value determinations under FAS 123R and related disclosure issues.