Washington (July 23, 2004) -- Ten years after Congress blocked a 1994 effort by the Financial Accounting Standards Board to require stock option expensing, lawmakers and accounting rulemakers find themselves in the midst of another showdown on expensing.
In the latest round of the fight on options, two Democratic and two Republican senators fired back at House legislation passed this week that would stall stock option expensing. Senators Peter G. Fitzgerald, R-Ill., John McCain, R-Ariz., Carl Levin, D-Mich., and Richard Durbin, D- Ill., banded together to pledge their support for FASB’s plan to require companies to expense all stock options.
The senators introduced a resolution reaffirming FASB's original purpose, "which was to devise independent accounting standards that ultimately would give the public straightforward and accurate information about the financial health of corporations," and urging the Senate to refrain from interfering with the board's recommendations.
FASB has proposed a rule that would require public companies to expense all employee stock options. If approved, the rule would take effect for most companies Jan. 1, 2005.
But legislation approved by the House Tuesday would effectively block the FASB rule and would instead only require companies to expense options granted to their top five most highly compensated employees. The legislation would delay the implementation of any rule on options until an economic impact study is completed. It would also exempt some small companies and let newly public companies delay expensing for three years.
The senators said that the House legislation would "severely undercut the independence and integrity of FASB." Fitzgerald called the bill's passage in the House "sadly ironic," because it came on the heels of the indictment of former Enron chief Ken Lay. Fitzgerald noted that 29 of Enron's top executives "cashed in on more than $1.1 billion in stock options in the three years before they ran the company into bankruptcy."
"The House of Representatives proved today that it learned little from the Enron scandal," Sen. Fitzgerald said. "The lack of accounting transparency is effective camouflage for those who want to abuse shareholders. Congress moved to increase accounting transparency with the landmark Sarbanes-Oxley Act of 2002, but now it is beginning to turn back the clock on important corporate reforms."
-- WebCPA staff
