The European Commission will delay to mid-December its endorsement of an upcoming accounting rule on stock options, increasing the risk the standard may not be adopted by January 2005 as planned, officials said on Monday.
Stock options - the right to buy or sell shares at a set price at a future date - do not count as operating costs and have been widely used in sectors such as IT, telecoms and pharmaceuticals, especially in the United States.
But the so-called IFRS 2 accounting rule will for the first time force firms to treat stock options and other share-based payments as costs, a move that will dent company profits.
In the United States, where regulators are also introducing the expensing of stock options, the issue has caused an uproar among firms using such cheap incentives to motivate staff.
The Commission's Accounting Regulatory Committee, which advises the EU's executive on accounting issues, was due to vote on IFRS 2 on Tuesday. But it postponed the vote to December 20 due to concerns about the introduction of the rule.
"The vote on IFRS 2 has been rescheduled to December 20," a source familiar with the dossier told Reuters.
The concerns over IFRS 2 come in the wake of a row over a key accounting standard for financial instruments, known as IAS 39, which dragged on for over a year until October.
IFRS 2 is part of a new set of International Financial Reporting Standards due to be adopted next year by around 7,000 stock-market listed firms in the 25-nation EU.
EU officials said key departments in the Commission had conflicting views over the prospective adoption of IFRS 2.
While the Commission's Internal Market department, which is responsible for the accounting portfolio, wants to go ahead with the new rule, the Enterprise department is concerned about the potential implications of the new rules on certain industry sectors and on small and medium size enterprises.
"Obviously there has been some pressure on the European Commission, from certain interest groups, not to have the standard being brought forward very quickly," an official from the European Financial Reporting Advisory Group, which advises the Commission on technical accounting issues, told Reuters.
EU officials said no EU state has so far expressed doubts about the usefulness of the new accounting rule.
UNICE, which represents European big business, said in a letter to the Commission most of its members supported the introduction of the stock options accounting rules, but raised doubts about the valuation method of options. The Accounting Regulatory Committee is, however, expected to endorse other key standards at its meeting on November 30. In particular, it is due to give its green light to the so-called IFRS 3 standard on business combination.
This new accounting rule will introduce a new way of evaluating mergers that will force companies to look twice at the real embedded value of a potential targets.
Under IFRS 3 firms will have to evaluate intangible assets such as brands and trademarks as well as tangible assets when they calculate goodwill from a merger.
Firms will not be able to amortise goodwill over several years, as they do now, but will have to conduct a test every year to see if a merger is still valuable - the impairment test - and book the result on the profit and loss account. The committee will also examine an accounting standard for insurers, known as IFRS 4.