House Committee Limits Expensing Options

Measure still faces tough opposition in the full House and in the Senate.

The Financial Services Committee of the House of Representatives voted 45-13 Tuesday to restrict an option-expensing standard recently proposed by the Financial Accounting Standards Board.

H.R. 3574, the Stock Option Accounting Reform Act — which was approved last month in subcommittee — would demand an economic impact study before FASB is permitted to implement its proposed rule. In addition, the bill would require companies to expense only stock options granted to the top five officers. Small businesses would be entirely exempt from FASB’s rule; newly public companies could forgo expensing for three years.

FASB, which is expected to issue a final rule by the end of this year, backed off a similar proposal in 1994 under congressional opposition.

The bill next faces a vote in the full House; as of last month, the measure has 107 co-sponsors there. According to wire-service reports, the bill’s chief sponsor, Rep. Richard Baker (R-La.), said that the bill is designed to protect stock-option plans used by smaller companies to attract employees while decreasing the likelihood of stock-option abuses involving a company’s top five officers.

Opponents in the House replied that especially after voting to increase FASB’s independence just two years ago, Congress shouldn’t interfere with the board’s standard-setting, wire services reported. Rep. Barney Frank (D-Mass.), for one, is convinced that overruling the board “will do some harm,” according to CBS MarketWatch. Added Frank, “I don’t want this committee to become the appellate of FASB.”

The bill would face even tougher opposition in the Senate, where Banking Committee chairman Richard Shelby (R-Ala.) has been a very strong, vocal supporter of FASB and has pledged to block any legislation that threatens the board’s independence or overrides its proposed rule.

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