Sen. Barbara Boxer introduces new bill to thwart the board

Norwalk, Conn. - Ending nearly a decade of controversy and debate, the Financial Accounting Standards Board voted unanimously that stock-based compensation should be recognized as an expense in income statements, with amounts recorded at fair value measured at the grant date.

The recent decision by the standard-setting body ended years of heated pro-con arguments over accounting for stock options. Expensing stock options was proposed in the mid-1990s, but intense lobbying efforts - particularly from the high-tech sector, which depends largely on stock options - forced FASB to retreat from its position that stock options should be expensed.

Opponents of expensing say that there is no tried-and-true method to value employee option awards, and predict that expensing stock options would result in volatile movements in stocks.

However, proponents point out that under current rules, companies have plenty of room to bury options in financial footnotes.

However, since the Enron and WorldCom scandals, an increasing number of companies have converted to expensing stock options.

A roster of Fortune 500 companies that have either begun expensing stock options or are considering expensing include: American Express, Coca-Cola, General Electric, Citigroup and Amazon.com. By contrast, technology giants such as Microsoft have indicated that they would not expense stock options.

Sen. Barbara Boxer, D-Calif., a staunch opponent of expensing stock options said, “Given FASB’s history on stock options, I am not surprised that they ruled to expense them. However, FASB admits that it doesn’t take into account the economic impact of its decision.”

A week after the FASB decision, Boxer teamed with Sen. John Ensign, R-Nev. to introduce legislation that seeks to defer mandatory expensing of stock options for at least three years. The bill would defer the new rules on stock options pending a study by the Commerce Department and the Securities and Exchange Commission.

The Senate measure is similarly structured to one offered earlier in the House by Reps. David Dreier, R-Calif., and Anna Eshoo, D-Calif., which, at press time, had 27 co-sponsors.

“This bill will send this whole matter to the SEC for review before the proposed rule goes into place and we are dealing with its unintended negative economic consequences,” Boxer said.

The board hopes to publish draft rules by the end of 2003. The International Accounting Standards Board indicated that it would issue similar rules on share-based payments also by year’s end.

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