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CFA Institute supports FASB and SEC on stock options

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29 Mar 2005

In a letter to the chairs of the US SEC and FASB, the president of the CFA Institute urged those organisations "to proceed with the planned implementation of the new stock option expensing rules as embodied in FAS 123(R)....

Any argument that stopping or delaying the expensing requirement is somehow good for investors is pure nonsense. It simply extends the practice of improperly understating compensation expense." With regard to measurement issues, the letter cites the successful implementation of IFRS 2:

The question of how to value stock options is not a valid reason to avoid taking an expense. The issue of stock option expensing has been studied and debated for decades. Refinement of valuation models has occurred over a similar time span by industry experts, Nobel Prize winners and accounting leaders. It is a simple fact that such calculations will never be an exact science. Neither is the estimate of depreciation. Yet, standard methodologies are working well under IASB rules, are being used voluntarily by over 900 U.S. firms already and represent a dramatic improvement over no expensing.

Click to Download the Letter (PDF 34k).

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