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FASB - SEC Open Letter 3/31/07 - "Equity Transaction Accounting Shortcomings" Summary Accounting Regulations will likely change to deal with 10b-18 / 10b5-1 conflicts, insider trading, option compensation and governance issues that have become apparent as "open market" corporate stock repurchases have become increasingly popular. Some recommendations make sense (Stephen Penman at Columbia University proposes that option expense be recognized upon exercise or expiration). Others do not (Senator Carl Levin, D., Mich. proposes curtailing the deductibility of stock option expense). Executives should plan for change in the accounting and regulation of stock buybacks. MG Holdings/SIP advocates good rules over bad. Bad rules lead to bad decisions, bad regulation, bad enforcement, and bad litigation. Good rules are a smooth ride to self regulation. In particular, we support Penman's recommendation that options be expensed at time of exercise. In addition, we support recognition of income on stock buybacks (now included only on the balance sheet, not in the income statement). Good regulations make good sense. |
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