In June 1993, the FASB issued an Exposure Draft on accounting for stock based compensation that would have replaced Opinion 25 with an accounting method based on recognizing the fair value of equity instruments issued to employees, regardless of whether the instrument was a share of stock, a fixed or performance option, or some other instrument, with measurement based on the stock price at the date the instrument was granted. Requiring all entities to follow the fair value method based in the Exposure Draft would have (a) resulted in accounting for stock-based employee compensation that was both internally consistent and also consistent with accounting for all other forms of compensation, (b) "leveled the playing field" between fixed and variable awards, and (c) made the accounting for equity instruments issued to employees more consistent with the accounting for all other free-standing equity instruments and the related compensation received.

 The response that the Board received on the Exposure Draft was extremely controversial. The Board's future working relationship with some of its constituents was threatened. If the standard had been implemented as originally issued, the FASB's authority to determine future accounting standards in the private sector could have been lost. As a result, significant modifications were made and Standard #123 Accounting for Stock-Based Compensation was issued. This statement provides companies the choice of accounting for transactions with employees. A company can choose to use a method that is within the scope of Opinion 25 or the fair value method that is described in Standard #123. If a company chooses to use a measurement method that is described in Opinion 25, that entity is required to disclose pro forma net income and, if presented in their financials, earnings per share, determined as if the fair value method had been applied in measuring compensation cost. NOTE: If a company chooses the fair value measurement approach, the election is permanent. (THIS IS OUR CURRENT SITUATION WITH MICROBOT PLANS -- ALL MUST BE RECORDED AT FAIR VALUE.)

Under the fair value based method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period.

The Board does believe that disclosure of the pro form effects of recognizing compensation cost according to the fair value based method will provide relevant new information that will be of value to the capital markets. The disclosure will achieve some, but not all, of the original objectives of the project. However, the Board still advocates that disclosure is not an adequate substitute for recognition of assets, liabilities, equity, revenues, and expenses in financial statements. The Board chose a disclosure-based solution for stock-based employee compensation to bring closure to the divisive debate on the issue – not because they believe that the solution is the best way to improve financial reporting.