Experts Call Expensing Stock Options Improper Accounting
Aug. 16, 2006
Ute S. Frey
UC Berkeley Haas School of Business
A University of California, Berkeley management journal became the focus in reopening the debate on stock option expensing last week when it published a position paper calling on the Securities and Exchange Commission (SEC) to repeal the Financial Accounting Standards Board’s (FASB) new standard requiring the expensing of employee stock options.
Thirty of the nation's leading experts in accounting, economics, business, and finance signed the paper to express their concern that financial statements are being impaired, not improved, by this rule. The thirty signatories include three Nobel Prize winners in economics, two former CEOs of “big four” accounting firms, two former secretaries of the treasury, and dozens of leading academics. Among the signatories is Dean Tom Campbell, dean of UC Berkeley’s Haas School of Business, who noted that the paper represents his personal views, not those of the university or the business school .
The position paper, entitled “ Expensing Employee Stock Options is Improper Accounting,” appeared last week in the Summer 2006 edition of the California Management Review, which is published by UC Berkeley’s Haas School of Business. California Management Review Editor David Vogel noted that the journal welcomes the opportunity to publish responses to this position paper.
“Mandating the expensing of employee stock options is one of the most radical changes in accounting rules in history, and we believe the FASB and the SEC have made a mistake,” said Kip Hagopian, a veteran venture capitalist and principal author of the position paper. “ We are concerned that the SEC did not hold its own hearings on this rule, and we are asking the Commission to reopen this issue for review and debate.”
“The SEC rule poses an obstacle to proper accounting,” said Dean Tom Campbell. “Allowing for a serious open debate of the accounting merits of this rule is what California Management Review has offered to do, and it is exactly what author Kip Hagopian and we signatories are asking the SEC to do.”
Following are key findings from Expensing Employee Stock Options is Improper Accounting:
"With the appointment of three new commissioners, including the new SEC Chairman Chris Cox and the new Chief Accountant Con Hewitt, we feel the timing is propitious to reopen the debate on expensing options," said Clarence Schmitz, one of the signatories and a retired national managing partner at KPMG. "Thirty of the leading minds in accounting, economics and business weighed in on this issue. We’re confident that our case against expensing is solid and are hopeful that it will be well received by the SEC.”
To order a copy of the position paper and list of signatories, go to http://cmr.berkeley.edu/order.html.
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Editor’s Note: Members of the press may receive a complimentary copy of the position paper by contacting Ute Frey via phone at 510.642.0342 or email at firstname.lastname@example.org.