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November 9, 2001

Paul A. Volcker

Chairman, IASC Board of Trustees

610 5^th Avenue

New York, New York 10020

Dear Chairman Volcker:

As trade associations and companies representing a diverse range of industries in the U.S. and abroad, we speak for thousands of organizations that issue employee stock options and millions of workers, many of whom receive stock options.  Our group also includes representatives of investors.  We write to express concern about the path being taken by the International Accounting Standards Board (IASB) in accounting for stock options. 

Our organizations have a significant stake in the mission of the International Accounting Standards Committee and we thank you for your critical efforts in establishing the new International Accounting Standards Board.  We are deeply concerned, however, that by electing to take up stock option accounting as one of its first major issues, the IASB raises troubling questions about its future.  At a time when stock markets are volatile and business investment is exceedingly weak, we are certain that the IASB’s proposal will unnecessarily regenerate a controversy that the U.S. Financial Accounting Standards Board’s (FASB) disclosure-based approach, embodied in SFAS 123, already addressed.   If the IASB continues on this controversial track, the debate on this one issue could endanger the current consensus supporting the IASB. 

We recognize the increasing importance of globally accepted accounting standards and respect the IASC’s purpose in promoting comparability and convergence.   The IASB’s current approach on international stock option accounting runs counter to these goals.  In contrast to the concepts of convergence and global harmonization, the IASB is in the process of writing an entirely new stock option standard that is different from anything used anywhere in the world.  No country today requires companies to expense stock options granted to employees.  Indeed, the one standard that is generally acceptable and enduring is that issued by the U.S. FASB after exhaustive due process and debate.  The current U.S. standard was issued only after a proposal similar to the current IASB approach was rejected on practical and technical grounds.  If adopted, the current IASB approach would create a distinct disparity between the time-tested U.S. standard and the IASB standard, and would preclude the consensus that we understood the IASB was designed to create. 

We continue our strong support for the FASB standard because many of us do not believe that stock options are an appropriate compensation expense.  Rather, the cost of stock options is borne by shareholders in the form of potential dilution.  In any case, even if the options should, in theory, be expensed, no reliable method has been found to measure that  value in a way that would not be misleading to investors.  The footnote disclosure embodied in SFAS 123 represents a balanced approach that offers interested investors ample information for understanding a company’s use of employee stock options without producing misleading financial statements.

We appeal to you and other members of the Board of Trustees, to whom we respectfully ask that you circulate this letter, to advise the IASB to devote its energies to projects that will, in fact, promote convergence and global harmonization of accounting standards.    

Thank you for your consideration of our views.

Sincerely,

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