Accounting Bulletin No. 110: Year-End Relief for Stock Option Expensing
 
January 14, 2008
 

On December 21, 2007, the SEC released new Staff Accounting Bulletin No. 110 extending the availability of Staff Accounting Bulletin No. 107 beyond its original deadline of December 31, 2007. SAB 107 provides a simplified method for estimating the expected term of a “plain vanilla” option. SAB 110 will permit eligible public companies to use a simplified method for estimating stock option expense if they have inadequate historical experience to provide a reasonable basis for estimating the expected term of an option grant (i.e., they lack sufficient historical exercise data or they have significantly changed the terms of option grants or the types of employees that receive option grants such that their historical exercise data may no longer provide a reasonable basis to estimate the expected term). Specifically, the Staff will accept the following simplified method for “plain vanilla” options: expected term = (vesting term + original contractual term)/2. Under the Financial Accounting Standard that requires the expensing of employee stock options, companies may rely on algorithms such as the widely used Black-Scholes-Merton model to determine the amount of stock option expense. This model, as well as other models used, requires companies to estimate the expected term of option grants.

http://www.sec.gov/news/press/2007/2007-267.htm
http://www.sec.gov/interps/account/sab110.htm