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SEC Clarifies Exemption on Backdated Options

September 20, 2006|From Bloomberg News

Companies that inadvertently backdated stock options may not have to book their underreported value as an expense, the Securities and Exchange Commission said Tuesday.

Companies uncovering stock option grants to executives below market price normally need to record the discount as a cost. But companies that had "short" delays in completing paperwork for option grants do not need to do so, SEC Chief Accountant Conrad Hewitt said.

The SEC's clarification is intended to "assist in the resolution of accounting issues that have been raised during reviews of past stock-option grants in a way that benefits investors and the capital markets," Hewitt said in a letter to Financial Executives International, a trade group representing chief financial officers and other finance executives.

Dozens of companies have announced they will restate their financial results after reviewing their stock option grants. At least 130 companies have disclosed either federal or internal options investigations.

The SEC's advice applies to grants issued before the new accounting rule requiring all stock options to be expensed went into effect, said Charles Mulford, an accounting professor at the Georgia Institute of Technology.

"It's removing some uncertainty about whether backdating or administrative delays changed, fundamentally, the measurement date," making it more likely that the options' value changed, Mulford said.

The SEC's letter offers companies informal guidance but does not carry the legal authority of regulation. It was issued in response to inquiries from companies and accountants, SEC spokesman John Nester said.

"It applies to everybody, but the benefit is going to be most apparent to the small and medium-size firms," Nester said.

Also Tuesday, Monster Worldwide Inc., owner of the job-listings website, suspended its top lawyer pending an option probe.

Myron Olesnyckyj, the company's general counsel, senior vice president and secretary, was suspended immediately, Monster said.

A restatement of Monster's results before Dec. 31 probably won't have a material effect on 2006 earnings, the company said, reiterating comments that it made July 11.

Shares of Monster fell $2.83 to $37.10.

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