Congress Gains Support in Stock Option Fight
FASB Chairman Robert Herz last week urged lawmakers to stay out of the standard-setting business, but now it seems the legislation that threatens FASB’s independence is gaining support on both sides of the aisle.
The “Broad-Based Stock Option Plan Transparency Act" was introduced in March by Rep. David Dreier (R-Calif.) and Rep. Anna Eshoo (D-Calif.) and currently has 44 co-sponsors. Nine new co-sponsors joined the ranks this week even after Herz’s impassioned pleas before the House subcommittee that was looking into the expensing of employee stock options.
The Financial Accounting Standards Board, which sets accounting standards for corporate America, is attempting to define how companies account for employee stock options. The bill could circumvent the FASB process.
CFO.com reports this week that the bill would require enhanced disclosure on employee stock options and would commission a three-year SEC study to look at the impact of stock options. During the three-year period, the SEC would not recognize as generally accepted accounting principles (GAAP) any new accounting standards that cover the expensing of stock options.
The moratorium would put FASB’s decision, which was expected by year’s end, on hold.
In his testimony, Herz protested the proposed three-year ban. "The moratorium," Herz argued, "would likely establish a potentially dangerous precedent in that it would send a clear and unmistakable signal that Congress is willing to intervene in the independent, objective, and open accounting standard setting process based on factors other than the pursuit of sound and fair financial reporting." He added: "Such intervention would also appear to be inconsistent with the language and intent of the [Sarbanes-Oxley] Act and the related [SEC] Policy Statement, both of which were intended to enhance the independence of the FASB."
This isn’t FASB’s first go round with Congress over stock options.
In the early 1990s, FASB proposed an option-expensing rule, which resulted in intense industry lobbying. Congress fired back, threatening to take away the board's standard-setting power. Then-SEC Chairman Arthur Levitt called on FASB to step back from the issue and FASB took no action on the matter.
Now FASB has the support of current SEC Chairman, William Donaldson, who has said Congress should not be in the business of making up accounting rules. With the trouble the government has in balancing its own books, Donaldson could be right.
Rep. Eshoo made reference to such issues in her remarks at the hearing: "Nothing in our bill requires Congress to get into the standard-setting business," she said. "We have problems keeping up with our own books."