Accounting firm Ernst & Young has reversed its opinion on how companies should account for stock options, saying financial statements should reflect their bottom-line cost, the New York Times reported on Friday.
The firm, which is under fire for advising executives at Sprint FON.N PCS.N to set up tax shelters related to their stock option transactions, made its change of heart public in a letter to the Financial Accounting Standards Board (FASB), the article said.
Ernst & Young, along with other major accounting groups, maintained for years that options should not be deducted as a cost to the companies that grant them, but the Times reported that now the firm says options should be reflected as an expense in financial statements.
The FASB, which makes the rules for the accounting profession, and the International Accounting Standards Board, its international counterpart, are trying to develop standards that are compatible for domestic and international companies.
In its letter, Ernst & Young said it strongly supported efforts by both groups to develop a method to ensure that “stock-based compensation is reflected in the financial statements of issuing enterprises,” the report said. The firm expressed reservations about methods that might be used to value options, but it noted that the current environment requires that the accounting for options provide relevant information to investors.
The letter had been in the works for some time and was unrelated to the recent events surrounding its advice to the Sprint executives, Beth Brooke, global vice chairwoman at Ernst & Young, told the Times.
Ernst & Young was not immediately available for comment early on Friday morning.
