The SEC Rules

  Financial reporting for America's small businesses

Download the Flash player at

5 July 2007 SEC proposes consolidation of Regulation S-B rules into Reg. S-K

27 June 2007 SEC proposes reducing holding periods under Rule 144

15 Dec. 2006 SEC again extends Section 404 compliance date for non-accelerated filers

Archives: 2005



SEC Staff Issues SAB 107 on Stock Option Accounting

Washington, D.C., March 29, 2005 - The staff of the Securities and Exchange Commission today issued Staff Accounting Bulletin No. 107, Share-Based Payment, comprising guidelines on applying Statement of Financial Accounting Standards No. 123R, requiring companies to treat employee stock options as an expense on the income statement, rather than merely disclosing the pro-forma cost in footnotes. 

The SEC staff said it issued the guidelines to help issuers comply with the new accounting rule and that companies can choose from a number of models when estimating the fair value of options.  The Bulletin provides guidance on selecting and applying such models. 

The SAB states that valuing options involves considerable judgment on the part of companies and suggests some may rely exclusively on historical data, while others may look elsewhere, such as to market movements, when determining the expected volatility and the expected life of the options, the two most critical determinants of an optionís value.  The staff further notes that the range of estimates generated by the various models for valuing stock options is not expected to be greater than those for other accounting estimates.  The Bulletin repeats a previously expressed staff position that the estimated life of non-employee options is equal to their contractual life.

Presented in question and answer format, the SAB has been assigned to a new topic, Topic 14, Share-Based Payment. In addition to clarification of the accounting treatment, the Bulletin provides guidance on related Managementís Discussion and Analysis disclosures. The SABís effective date is the same as the FASB Statement, i.e., for the first interim period beginning after June 14, 2005. 

Staff Accounting Bulletins are not official Commission rules or pronouncements,but the weight of their authority is unquestioned; they constitute the highest order of unofficial guidance.