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Unformatted text preview: tion expense. The fair value estimated by option pricing
models, in SIIA's opinion, does not accurately reflect the actual expense, as the
estimated amount is not what will be realized by employees. Therefore,
valuation using a modified option pricing models will result in overstated
expense in financial statements.
Another c oncern o f S IIA i s t he l ack o f s tandardization i n v aluation
methodologies. Considering that SFAS 123 permits the use of the BlackScholes model or any other valuation model, which includes six variables,
companies will start developing new approaches to establish a fair value of
stock-based compensation plans. The choice of valuation model, combined
with company-specific calculations, provides inconsistent and incomparable
results to investors. From the investors' point of view, comparing the cost of
stock options for different companies with different stock option plans and 57 different variations of the Black-Scholes model will not be meaningful in any
In conclusion, SIIA stresses its strong belief that the intrinsic value method is
the most appropriate method for measuring stock-based compensation expense,
as this method would provide most valuable investor information.
Anheuser-Busch is a worldwide operator in beer, adventure park entertainment
and packaging. Its interests also cover aluminium beverage container recycling,
malt production, rice milling, real estate development and transportation
In its Comment Letter, Anheuser-Busch states that "…stock option accounting
is not an issue of either transparency or full disclosure." In the company's
opinion, all the information investors need is already available in companies'
annual reports. Anheuser-Busch deems FASB's proposed multiple-choice
approach to transition and disclosure as ill advised. Providing several adoption
alternatives for companies will only confuse investors and in no way will add
more clarity of disclosure.
The suggestion of Anheuser-Busch is to select a single method of transition,
namely the full restatement method, as it is the simplest one. The information,
which is necessary to restate the previous periods, is already available as
companies had to provide pro forma disclosures since the introduction of SFAS
123. Besides, it places all companies choosing to expense stock options on the
The relocation of disclosure regarding the income statement impact of stock
options is, in Anheuser-Busch's view, a form-over-substance measure. Moving
this disclosure from the footnotes to the "Summary of Significant Accounting
Policies" section won't increase the effectiveness of disclosure. However, it will
elevate it over other disclosures, which is not justified. It is the users of
financial statements, who have to determine the importance of individual
disclosures based on their specific investment criteria, and not the placement of
disclosure within the report.
4.2.4 Accounting and Valuation Group of UBS Warburg Equity Research
The Accounting and Valuation Group of UBS Warburg Equity Research (UBS
Warburg) g ives a dvice o n f inancial a ccounting a nd e quity v aluation 58 methodology to UBS Warburg equities clients and to equity analysts within
UBS Warburg Equity Research (www.ubswarburg.com).
UBS Warburg believes that FASB's proposal to permit three methods of
transition would further impair the comparability and consistency of reported
results. Users of financial statements would not only have to distinguish which
companies have adopted the fair value based method, but will also have to
determine which transition method these companies used.
In UBS Warburg’s view, stock options meet the recognition criteria, i.e. there
is a cost to shareholders when stock options are issued, the cost can be
measured with sufficient reliability and the information is both, value relevant
and reliable. Therefore, UBS Warburg recommends FASB to endorse the fair
value based method of accounting for stock option plans. It is the company's
belief that the fair value based method better reflects economic reality and
economic position of companies.
UBS Warburg supports the adoption of only one transition method. Retroactive
restatement is considered to be the most appropriate as it provides consistent
and comparable results. However, UBS Warburg stresses that if FASB is
unable to adopt full retroactive restatement, then the modified prospective
method would be a reasonable compromise.
4.2.5 JPMorgan Chase & Co.
JPMorgan Chase & Co. (JPMorgan) applauds the attempt of FASB and IASB
to bring convergence to accounting standards around the world. However, it
disagrees with the main provisions of the proposed amendment. JPMorgan
advises the continued use of the prospective method of transition, which is
required by SFAS 123. Although the firm is not opposed to the use of other two
alternative methods, it says that since many companies, which adopted fai...
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This document was uploaded on 10/31/2013.
- Fall '13