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The Financial Accounting Standards Board’s proposal requiring companies to expense stock options found some much-needed support on Capitol Hill on Tuesday. Sen. Peter Fitzgerald, chairman of the governmental affairs financial management subcommittee, applauded FASB’s plan and vowed to fight any legislative effort to block its implementation. “Expensing of stock options will move financial statements from the fiction to the non-fiction,” Fitzgerald said at a hearing he called on the FASB proposal. “Expensing should be mandatory.” Congress contributed to the financial disasters that befell Enron Corp. and WorldCom Inc. by interfering with an FASB plan in the early 1990s to require companies to book the cost of options, he said. “Congressional interference in 1993 resulted in disastrous consequences,” Fitzgerald said. Fitzgerald picked up support from Sen. Carl Levin, D-Mich., who said lawmakers need to leave the standards setting group alone. “Without an independent FASB, we are going to be politicizing accounting rules,” he said. “We should not intervene and say we know better than FASB.” FASB Chairman Robert Herz said only an independent FASB can maintain the integrity of the nation’s accounting system. “While current efforts by certain parties to block improvements to the accounting for equity-based compensation may seem attractive to some in the short run, in the long run biased accounting standards are harmful to investors, creditors and capital markets and the U.S. economy,” Herz said. But Sen. Joe Lieberman, D-Conn., said changing accounting standards is not a silver bullet to stop corporate crime. Rather, it would force companies to eliminate options for the majority of employees, he said. Tuesday’s hearing will stand in sharp contrast to a scheduled proceeding before the House Financial Services capital markets subcommittee. Panel chairman Richard Baker, R-La., is sponsoring legislation to bar the Securities and Exchange Commission from recognizing the FASB rule until an economic impact study has been completed. “We must keep in mind that for many of our most exciting new companies, employee stock options are essential for future growth,” Baker said Tuesday. “So we need a balanced approach, one that demands sound corporate governance but also helps all employees and safeguards American competitiveness and the incentives for ingenuity.” FASB wants to require companies to deduct the value of all employee stock options from earnings. Current FASB rules allow companies to count the value of their employees’ options as an expense or to provide detailed information about those stock options in footnotes to their financial statements. As an alternative to the FASB proposal, Baker’s bill would require most companies to expense options for their chief executive and the next four highest-paid officers. Copyright �2004 TDD, LLC. All rights reserved.

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