Compliance June 15, 2004

FASB Options Expensing Limit Bill Gets Committee OK

June 15, 2004 (PLANSPONSOR.com) - In the ongoing contest of wills between the nation's accounting rulemaker and lawmakers who believe it needs a leash, a Congressional committee has okayed a curtailing of a move to require expensing of company stock options.

Reported by

Fred Schneyer

The U.S. House of Representatives Financial Services Committee approved 45-13 a bill to restrict any option expensing standard from the Financial Accounting Standards Board (FASB) to options granted to the top five officers of a company, Reuters reported. The bill would also delay implementing any standard for a year, until completion of an economic impact study by the federal departments of Labor and Commerce.

Headed next for a vote in the full House, the options expensing bill faces an uncertain future in the Senate, where some lawmakers have said Congress should not meddle with FASB, a private group that oversees U.S. accounting standards.

The bill’s sponsor, Representative Richard Baker (R-Louisiana), said the measure was aimed at protecting broad-based stock option plans that start-up companies often use to attract workers. These plans might simply dry up if they had to be expensed, he argued. Baker asserted that requiring the expensing of options issued to a company’s top five officers would adequately address concerns about the abuse of option grants by company bigwigs.

But opponents contend federal lawmakers need to stay out of setting accounting standards, especially just two years after voting to increase FASB’s independence in the Sarbanes-Oxley Act crackdown on corporate corruption.

By approving the Baker bill, “we set the precedent of our overruling the FASB. I think that is a mistake,” said Massachusetts Rep. Barney Frank, a Democrat.

Forcing companies to expense options would give investors a clearer picture of profitability and executive pay, according to supporters of the FASB proposal. A similar bill has been filed in the Senate by Wyoming Republican Senator Michael Enzi. But Alabama Republican Senator Richard Shelby, who chairs the Banking Committee, said earlier this month that FASB should be unshackled in its ability to determine accounting standards free of political interference from Congress.

FASB considered requiring options expensing before, but backed away in 1994 under intense political pressure from the Senate. FASB recently proposed that options should be expensed and is expected to issue a final rule by the end of this year (See FASB Chief: Expensing Proposal a Needed Change ).