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International Accounting Standards

The National Venture Capital Association (NVCA), the only US public policy advocate for the venture capital and private equity industries, lobbies against many issues that affect entrepreneurs and venture capitalists. Currently, a big issue has been how stock options are expensed. The NVCA is concerned that the International Accounting Standards Board (IASB) is moving with “alarming speed” in advancing a proposed international accounting standard that would require companies to record a value for stock options and charge that value against earnings.

Representatives of the US Financial Accounting Standards Board (FASB) and other national standards boards helped formed the IASB earlier this year to serve as an independent private sector body whose mission is to promote harmony and convergence of international accounting standards.

Despite the activity of the IASB, officials at the FASB have not indicated a strong interest in either adopting a new international standard or writing a new US standard in this area, according to the NVCA. A similar and controversial FASB project in the early 1990s was thwarted only after Congress entered the fray and threatened the independence of the FASB. Current US accounting standards call for footnote disclosure of options, but not expensing.

Nonetheless, the NVCA and its industry allies worry that if the IASB adopts a new standard requiring the expensing of stock options, the FASB “will be under enormous pressure to harmonise.” Moreover, the European Union recently passed a directive requiring companies that list on European exchanges to adopt IASB standards by 2005.

Despite strong protesting by industry and indication from the FASB that it does not support this project, the IASB is moving ahead. It is expected to issue a formal proposed standard, or “exposure draft,” next year. NVCA has formed an industry coalition and is working with members of Congress and other policy makers to fight this proposal.