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House Panel to Examine Options Accounting WASHINGTON, May 28, 2003 A House panel said on Tuesday that it would hold a hearing next week on the accounting treatment of stock options. The hearing, which is entitled Accounting Treatment of Employee Stock Options, is scheduled for June 3 by the House Committee on Capital Markets. It will provide both sides with a forum to review H.R. 1372, the Broad-Based Stock Option Plan Transparency Act.
Introduced by two California representatives, David Dreier and Anna Eschoo, H.R. 1372 would require enhanced disclosure of companies' stock options and a three-year study of its effects by the Securities and Exchange Commission, during which time new accounting standards regarding options would not be recognized.
The Dreier-Eschoo proposal is in response to concerns regarding the Financial Accounting Standards Board's tentative decision to require companies to book stock options as an expense. Earlier this month, senators and technology executives lashed out at FASB chief Robert Herz for the board's proposal, arguing the U.S. economy could suffer if companies are forced to expense options.
Those in favor of allowing companies to continue issuing stock options under the current accounting rules argue that options align executive and shareholder interests, provide a valuable tool for start-up, cash-strapped companies and benefit rank and file employees who receive options as part of their pay packages. It is also argued that options would be difficult to value for accounting purposes and attempts may lead to a misrepresentation of company assets.
On the other hand, concerns about stock option accounting were elevated by recent corporate wrongdoing uncovered at Enron, WorldCom and others. Some argue that options entice executives to superficially increase stock prices in order to increase their personal worth.
2003 SmartPros Ltd. All rights reserved.
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