The accounting standard requiring the expensing of stock options generally works as intended, although it’s a difficult rule for nonpublic companies to follow, according to a recent review by the Financial Accounting Foundation.

The Financial Accounting Standards Board doesn’t plan to take up any rulemaking activity following the FAF review of Financial Accounting Statement No. 123R: Share-Based Payment, said FASB Chairman Russell Golden in his response to the review. Adopted in 2004 under a torrent of criticism from the preparer and accounting communities that it didn’t fairly represent the economics of stock option awards, the rule is more difficult for private companies to understand and more costly to apply, the FAF review determined.

That’s consistent with what FASB heard, said Golden, when conducting research on an initiative to simplify accounting standards and on possible topics for consideration by the Private Company Council. “Although we do not plan to undertake a comprehensive review of the standard, we will continue our outreach to stakeholders to identify improvements to account for share-based payment transactions,” said Golden. “The FASB staff will bring the results of the outreach to the board and the PCC later this year for discussion.”

Based on its research, the post-implementation review team determined FAS 123R, now codified in the Accounting Standards Codification under Topic 718, addresses the concerns raised by users of financial statements that companies were not recognizing in earnings the cost of employee services received in exchange for share-based payment awards. The standard was successful in increasing comparability and simplifying the accounting for share-based payment transactions, and it converged significantly with International Financial Reporting Standards.

For public companies, the standard is generally not difficult to follow, but private companies have more trouble because the financial instruments used for share-based payment awards are more complex and the companies have less expertise internally to deal with the accounting, FAF said. Private companies also struggle more with ongoing costs to comply because measuring awards, estimating forfeiture rates, and determining equity or liability classification is much trickier, according to FAF.

The review team offered no specific rulemaking recommendations to FASB. In his response, Golden said the review affirms FASB’s standard-setting process. “Given the challenging debate about accounting for share-based payment preceding the issuance of Statement 123R and the significance of the financial reporting change, we believe that the feedback from the PIR team is indicative of the overall quality and integrity of the FASB’s standards-setting process,” he wrote.

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