Was this a crack in the defenses, or was it a calculated retreat to more favorable ground for what is shaping up to be the decisive battle on employee stock options? In a 5-2 vote yesterday, the grand pooh-bahs of accounting standards in the United States, the Financial Accounting Standards Board (FASB), determined that they would delay implementation of a rule that changes American generally accepted accounting principles (GAAP) to require that stock options granted to employees be treated as expenses.

Certainly, by pushing the effective date for the rule back from January 15 to June 15, 2005, FASB is responding to the intense pressure that has come from the high-tech industry's lobbyists, certain members of Congress, and most recently, from the Securities and Exchange Commission. The SEC's chief accountant, David Nicolaisen, had urged FASB to consider a delay because he has concerns that companies would be unable to properly implement options expensing in early 2005. Of chief concern for Nicolaisen is that many companies and their auditors are already reporting extraordinary difficulty in applying the internal audits due to be required under the Sarbanes-Oxley Act, which will become de rigeur early next year. Nicolaisen stated that he believes that as many as 20% of all companies might have to report weaknesses in internal corporate controls under the new requirement, and believes that correcting this deficiency is of utmost importance. Nicolaisen also notes that his support of a delay in employee stock option expensing should not be misconstrued as a lack of support for options expensing, saying that both he and SEC Chairman William H. Donaldson are behind FASB in this regard.

But let's not lose sight of what has taken place: FASB reiterated its determination -- as the nation's accounting rule setter -- that stock options for employees will be expensed, and soon. FASB bent a little to the pressure, but it hasn't broken at all. To wit: The board rejected out of hand a proposal put forth by Cisco (NASDAQ:CSCO), Genentech (NYSE:DNA), and Qualcomm (NASDAQ:QCOM) to value stock options using a model that would lower the reported hit to expenses by around 70% on average. This lets the tech lobby know that FASB plans on sticking to its guns. You can read more about the tri-partite proposal in my September 15 article "Exhausting Every Option".

But it's not like stock option valuation is a new issue. Even the most rabidly opposed companies like Intel (NASDAQ:INTC) and Apple (NASDAQ:AAPL) already expense options used for anything other than employee compensation. They know how to do this. Smaller companies, which FASB legitimately worries about, might not be ready, but the big boys have been thinking about this for a decade or more, and 500-plus companies have already voluntarily decided to expense, including Amazon.com (NASDAQ:AMZN). For the well-heeled opponents of employee stock option expensing, the six-month reprieve is nothing more than an additional length of time when they can lay it on thick and get the whole thing overturned, or at least neutered.

Jeff Peck, an anti-expensing lobbyist, noted sourly that FASB deliberated the valuation proposal that the Cisco group put forward for only 28 minutes before rejecting it.

Well, Jeff, that's because the proposal sucked.

The other wild card at this point is that on November 2, we're going to have an election that could conceivably change the complexion of Congress, the White House, and the SEC, potentially in a way that favors those opposed to expensing employee stock options. That's one thing that the delay certainly risks -- although FASB itself is immune to election cycles, it is about a Richard Shelby loss of committee chairmanship away from having both houses of Congress lined up against it. The House has already approved an insane bill that would expense only the options granted to the top five executives, and a similar bill has substantial support in the Senate. Senator Shelby, though, believes that FASB's independence should be protected, and has refused to allow expensing to be discussed in the committee he chairs, Banking, Housing and Urban Affairs.

We'll see what happens. It's a high-stakes showdown at this point. Whatever the outcome, this much seems lost among the back-and-forth: Most analysts and savvy investors already make their own adjustments to earnings to account for unexpensed stock option grants. Keeping these compensation costs off the income statement may make earnings look better to the CNBC crowd, but like the Y2K scare, the impact is likely to be much smaller than companies fear, as the major consumers of their financial statements have already taken employee stock options into account.

Bill Mann does not own any company mentioned in this story. He is a member of the User's Advisory Council of the Financial Accounting Standards Board.