Financial Accounting Blog

Thursday, June 10, 2004

Congress and FASB Decide to study effects of stock options reports that as part of the Financial Transparency Act, Congress will begin a three year study on the effects of booking stock options as expenses. However, during that three-year period, there can be no change to the expensing rules. FASB is opposed to this bill.
But the proposed legislation would also commission a three-year study of the effects of such disclosure. During that time, new accounting standards governing options would not be recognized... The bill's sponsors argue that mandating companies to expense options would effectively eliminate the use of broad-based options plans as an incentive for rank-and-file employees. They also claim such a move would create less accurate financial information for shareholders... Not surprisingly, standards-setters at FASB, which has tentatively decided to require companies to book stock options as an expense, strongly oppose HR 1372. Beyond the proposal to stall FASB's final rule from being recognized as GAAP by the SEC, the proposed legislation calls into question the accounting rulemaking body's independence.