May 17, 2005

Commission and Corp Fin Both Provide Internal Controls Guidance

Early yesterday, I updated my blog about the PCAOB’s guidance on their internal-controls requirements – see both the PCAOB’s new FAQs 38-55 and the Board’s policy statement.

Meanwhile at the SEC, the Commission itself issued a statement – plus the Corp Fin staff also issued its own statement on management’s 404 report.

How Is Your Board Deciding to Implement Option Expensing?

As should be evident by now, under the FASB’s 123(R) standard, each company has some flexibility about how to implement option expensing – and the decision about how to do so should have quite an impact on the company’s bottom line. As the numerous NASPP webcasts on this topic – as well as the other resources on the NASPP’s site – make clear, this decision is one that requires some board attention. Learn more in this interview with Mike Melbinger on the Board’s Decisions for Stock Expensing.

SEC Filings Don’t Tell the Whole Pension Story

Today’s Washington Post carries an interesting column by Allan Sloan about the discrepancies between pension valuations disclosed in SEC filings by distressed companies compared to the amounts that the Pension Benefit Guaranty Corporation derives when it terminates the plans of those companies.

On an unrelated note, the SEC Staff released a scathing report yesterday on pension consultants and conflicts of interest.

Is Cisco Kidding?

Last week, I blogged about Cisco’s attempt to create employee stock options that are market traded. Here is some commentary on this idea from Ron Fink’s CFO Blog (not that I agree with Ron, just noting other’s views):

“Cisco’s latest idea for reducing the reported cost of employee stock option grants sounds as if it depends on a poorly performing derivative instrument (see B5 of the WSJ for a better description). How else describe a security that institutional investors could buy but not sell, making them wait as long as five years to convert it to common stock?

Yes, the price of the derivative may suffer as a result of these limitations. And in doing so, that could conceivably establish a market value for the underlying securities—the option grants—that is lower than what might be recorded under the option pricing models that are acceptable to the FASB.

But if the security is such a lousy deal, why would anyone buy it? And if it’s not so lousy, wouldn’t the resulting dilution to EPS offset the benefits?

It seems to me that Silicon Valley’s time and efforts would be better spent on producing new technology instead of methods of limiting the impact of an accounting rule. After all, investors may simply ignore the hit to earnings and focus on cash flow instead. Or is that what really concerns the tech lobby?”