Accounting Rules Require Valuation of Equity Awards at Date Grants Communicated

Resolving some ambiguity, the Financial Accounting Standards Board, in a meeting with top accounting firms, has clarified that the grant date for purposes of equity award valuations is not the date the board decides on the option, but the date the grant is communicated to employees. That potentially means that a board may approve an award on one date but the award's expense would not be determined until a later date.

To deal with this, companies can coordinate their communications to employees with the board's decision, either by preparing all materials beforehand or by communicating to employees that award announcements will be made at the board meeting and providing a way for employees to check their awards on that date. Option prices could also be set so that they are as of the date of employee notification.