Big Four Urge Congress to Respect FASB's Independence

March 22, 2004 ( - The "Big Four" United States accounting firms are asking the US Congress to respect the independence of the US Financial Accounting Standards Board (FASB) by not passing legislation that would have the effect of restricting FASB's ability to establish accounting standards.

The quartet of accounting firms sent its letter to the ranking members of the US House of Representatives Subcommittee on Capital Markets, Insurance and Government in response to a proposed bill in the House.   The letter is signed by:

  • Dennis Nally, Chairman and Senior Partner, PricewaterhouseCoopers LLP
  • Eugene O’Kelly, Chairman and Chief Executive Officer, KPMG LLP
  • James Quigley, Chief Executive Officer, Deliotte & Touche USA LLP
  • James Turley, Global Chairman and CEO, Ernst & Young.

Under the legislation currently being considered in the House, all stock compensation granted to rank-and-file employees would not be counted as an expense.   Rather, the expensing of stock based compensation would be reserved for a company’s top five executives (See  Pelosi Backs Executive Option Expensing Bill ).   In addition, a bipartisan group of US Senate backers introduced a similar limited option expensing measure in November (See   Senators Introduce Option Expense Limit Bill). 

However, the proposed laws fly in the face of soon to be introduced regulations at the Norwalk, Connecticut-based FASB that would require companies to consider all employee stock options as an expense. The FASB voted in late 2003 to draft new rules requiring companies to consider employee stock options as an expense (See  FASB: Option Expensing Begins in 2005 ).  The nation’s accounting rulemakers are expected to issue draft rules later this month outlining mandatory option expensing procedures. 

“Interfering with the FASB’s processes and judgments could unintentionally relegate the interests of investors to a subordinate role, and result in accounting that fails to convey economic substance,” the four firms state in their letter.

In addition to urging for a FASB independent of Congressional preemption, the accounting firms also took the chance to reaffirm their support for mandatory stock option expensing, “whose fair value would be determined in a manner suitable for the reporting company.”  

A copy of the complete letter is available onPricewaterhouseCoopers’ Web site, found  here .