Is history going to repeat itself? Will Congress move as it did 10 years ago to undercut the authority of the Financial Accounting Standards Board (FASB), which is authorized by the Securities and Exchange Commission to set U.S accounting standards?
For the second time in a decade, Congress is taking up the mandatory expensing of stock options, a controversial recommendation by FASB, which could be a direct hit to the bottom lines of many U.S. companies who use the options as a form of employee compensation. Last time, Congress passed a bill that overwhelmingly called on FASB to abandon its stock option plan, which is how FASB came to pass the lesser version requiring the impact of the options be footnoted in company financial statements.
Congress is getting ready to go around again on the issue, with a variety of opinions emerging among members. Some worry that by taking action, Congress would be compromising FASB's independence by setting a bad precedent, CBS MarketWatch reported.
"Congress' interference resulted in disastrous consequences," Sen. Peter Fitzgerald proclaimed at a hearing he chaired Tuesday afternoon in the Senate Subcommittee on Financial Management. "The Senate opened the floodgates to 'anything goes' accounting, " Fitzgerald said, referring to what happened a decade ago.
Those who favor the expensing of stock options tend to believe the compensation practice that became trendy in the 1990s led to some of the accounting scandals by giving executives an incentive to cook the books to improve stock prices, making their own options more valuable, CBS MarketWatch reported.
Politicizing the matter is not the way, some say. "That's the worse thing we can do," Sen. Carl Levin, the Michigan Democrat who led extensive investigations and hearings into Enron's collapse, told CBS. He said the sweeping Sarbanes-Oxley Act of 2002 was designed to promote the independence of FASB by giving it an independent funding source and thereby removing it from the congressional appropriations process.
Sen. Robert Bennett, (R-UT), who generally supports the FASB measure, looked directly at FASB Chairman Robert Herz at Tuesday's hearing and told him his organization has "missed the boat badly."
"There is potential for significant harm," Bennett said, referring to the potential for serious economic consequences should the FASB measure be adopted.