The Hindu Business Line : ESOPs must be expensed: PwC chief

BILLIONS of dollars lost in market capitalisation notwithstanding, the Global Chief Executive Officer (CEO) of PricewaterhouseCoopers (PwC), Mr Samuel DiPiazza, sees merit in expensing the employee stock options granted by companies.

The accounting treatment of employee stock options has become an issue of international debate, with many hi-tech companies in the US opposing moves to make expensing of stock options a mandatory requirement. "I see a clear chance in expensing the stock options. They are in the nature of compensation payments made to employees for the services rendered. Therefore, they should be expensed," Mr DiPiazza told Business Line here.

While the International Accounting Standards Board (IASB) has come up with a proposal for expensing of stock options, there is lot of resistance to adoption of such a proposal, especially from the hi-tech companies of the US and Mr Oxley (chief architect of the Sarbanes-Oxley Act) himself.

The hi-tech companies fear erosion of their bottomlines on account of adoption of such an accounting treatment on the employee stock options granted by them. In India, the Institute of Chartered Accountants of India (ICAI) is yet to take a formal call on the accounting treatment of ESOPs (especially the new forms) in a comprehensive manner.

Mr DiPiazza, who is an American, said that the biggest challenge on the ESOP front is the valuations of such form of compensations. "More than the accounting treatment, it is the valuation which is an area of challenge," he said.

The IASB proposal, which is yet to be cleared by its board, envisages valuation of employee stock options on the day they are granted. Then the costs are expensed through the term of their validity.

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