You are on page 1of 2

TO:

FROM:
RE:
DATE:

TBD
NAME
FASB Comment Letters
09/02/2009

The Financial Accounting Standards Board (FASB) seeks comments from businesses to improve
proposed standards. According to the FASB, it follows an extensive due process that is open
to public observation and participation[1] to essentially maintain an evenhanded decision
making process.
Eaton does not believe that the current accounting standards surrounding employee stock options
need to be changed. Eaton believes (which include but are not limited to):
1. Employee stock options are not the most reliable measurement
2. Employee stock options do not represent expense to the company that should be recorded

in the income statement


3. Current stock option pricing models do not accurately value employee stock options
4. Companies should continue to be allowed to expense stock options by the straight-line

method
Eaton proposes several suggestions for change in SFAS 123R. Eaton believes that the investor
needs for information related to stock options is best met by comprehensive pro forma financial
information. Ongoing diligence regarding employee stock options does not accurately value
employee stock options. When the stock options are issued they have no value because they are
not transferable... their future values are speculative. The Exposure Draft on Share-Based
Payments Attempts to estimate the fair value of options using option-pricing models that were
never intended to value employee stock options.Eaton suggests that FASB continues to allow
organizations to use the straight-line method for expensing stock options. When stock options are
not exercised, FASB does not provide a method of accounting for these events. Overall, the
current FASB accounting standards surrounding employee stock options is sufficient and does
not need to be revised according to Eaton.
Eaton takes the position it does because it wants to ensure that it utilizes its resources efficiently
and effectively. The change(s) will greatly impact Eaton and its 50,000 + employees. FASB's
proposed changes will require companies to spend time and money to implement them which
will most likely reduce net income. The SEC required financial contracts are sufficient for
investors to determine employee stock options valuations without any further changes to the
system..
The argument made in the letter is reasonable but under developed. Eaton focused on its self
interest as opposed to its investors. One of the FASBs perceptions in the conduct of its activities
is to promulgate standards only when the expected benefits exceed the perceived costs. Eaton
explained why the current Exposure Draft on Share-Based Payment does not uphold to the
FASBs conduct of activities. In this case, the costs outweigh the benefits. Several of Eatons

arguments are mentioned above that further showcase why the FASB should not change the
accounting for employee based stock options.
[1] http://www.fasb.org/facts/index.shtml

You might also like