Date:22/12/2004 URL: http://www.thehindubusinessline.com/2004/12/22/stories/2004122203130300.htm

Back Infosys required to adopt new accounting norms from July

Vishwanath Kulkarni

Bangalore , Dec. 21

INFOSYS Technologies expects an adverse impact on its earnings after it adopted new accounting standards with respect to expensing of stock options.

The company is required to adopt new accounting standards from July 1, 2005. The Financial Accounting Standards Board's recently issued revised FASB Statement No 123 states share-based payment requiring companies to change their accounting policies to record the fair value of stock options issued to employees as an expense.

"We do not currently deduct the expense of employee stock option grants from our income based on the fair value method," Infosys said in its latest filing to the Securities Exchange Commission. "The change in the standard will adversely affect our operating results, and we are evaluating the magnitude of the impact on our existing grants of employee stock options and future grants, if any," Infosys said.

The new accounting treatment implied that the stock options would have to be treated as funded liabilities. As per the revised rule, the grant of stock options has to be treated as expenditure and accordingly charged to the P&L account. This could result in increase in expenditure for the company.

However, had the compensation cost for Infosys' stock-based compensation plan been determined in a manner consistent with the existing fair value approach described in SFAS (statement of financial accounting standards) No 123, the net income as reported for first six months ended September 2004 would have been reduced to $164 million. However, the actual reported net income for H1 2004-05 was $180 million.

SFAS provides rules for estimating a fair value of stock-based employee compensation plans. SFAS 123 applied to all transactions in which a company issues equity instruments or increases its liabilities by issuing its equity securities as compensation for services or products, according to financial accountings board of the United States.

Meanwhile, Infosys said the indicative price for its proposed secondary sponsored issue was pegged at a maximum of $69.9 per share.