The Canadian Institute of Chartered Accountants says that investors will be the biggest beneficiaries of a move to account for employee options as a compensation expense.

On December 3, the Accounting Standards Board will release a new accounting standard, effective for financial statements beginning on or after Jan. 1, 2002, that in most cases will require that stock options be recognized at their fair value.

“The new standard is an important step in providing relevant, reliable information to investors, analysts and regulators,” said Paul Cherry, chair of the AcSB, which was responsible for drafting and enacting the new standard. “The message we are sending is that we want transparent and accountable capital markets.”

The standard will require stock options awarded to non-employees, or to employees who participate in Stock Appreciation Rights plans, or “phantom stock option plans,” to be recognized at fair value as an expense.

Other stock options awarded to employees must either be recognized at fair value as an expense, or pro forma net income and, for public companies, pro forma per share amounts must be disclosed as if fair value-based accounting had been used.

Investors stand to benefit most from the new standard, says CICA. “Should the accountability be fundamentally different just because the parties choose stocks as payment as opposed to cash?” asked Cherry. “Of course not, but prior to this new standard coming into effect, this is generally what happened: purchases of goods and services paid for with stock options went unrecorded, the other parts did not.”

“This standard also achieves our goal of harmonization, by allowing companies to comply simultaneously with both U.S. and Canadian Generally Accepted Accounting Principles,” said Cherry.