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Controversial legislation curbing a proposed rule on corporate accounting for employee stock options is expected to come to the House floor as early as today. The Stock Option Accounting Reform Act, H.R. 3574, has broad bipartisan support and is expected to easily pass a vote in the full House, but approval by the Senate is seen as problematic. Introduced by Rep. Richard Baker, R-La., the bill would restrict a proposal by the Financial Accounting Standards Board that requires companies to count the value of stock options as expenses, just as they do other forms of compensation. The board expects to issue a final rule by year’s end. The Baker bill would dilute the proposal by limiting stock-option expensing to a company’s top five executives and delaying implementation of any rules pending a government study on their potential economic impact. The measure also would give small businesses a reprieve, exempting companies with less than $25 million in annual revenue; new public companies would have a three-year exemption. Supporters say the bill will preserve the use of stock options to reward rank-and-file employees while improving corporate disclosure of option grants to senior executives. The House Financial Services Committee, chaired by Rep. Michael Oxley, R-Ohio, approved the measure on June 15. Rep. Cliff Stearns, R-Fla., chairman of the Subcommittee on Commerce, Trade and Consumer Protection, said Friday he is considering introducing his own legislation on stock-option accounting, although he did not elaborate. Stearns, meanwhile, proposes an amendment to the Baker bill that would allow companies that voluntarily expense all employee options to continue doing so. Stearns contends that H.R. 3574 would bar them from that practice. “At a recent hearing I held on stock option expensing, the chairman of the Financial Accounting Standards Board testified that 576 companies are currently expensing options,” Stearns said. “As it now stands, H.R. 3574 would prevent these companies from continuing to voluntarily expense stock options.” But Peggy Peterson, a spokeswoman for Oxley, said the bill does not preclude companies from expensing options. “It will be up to the House Rules Committee to decide what amendments will be included,” she said. U.S. accounting rules allow companies to either treat options as an expense or disclose their value in the footnotes to a firm’s financial statement. Opponents of the Baker measure said congressional interference into FASB’s rule-making sets a dangerous precedent and that the process should be left to independent experts. “This is an issue about what is the right accounting standard,” said Patrick McGurn, vice president of Institutional Shareholder Services Inc., a proxy advisory and corporate governance firm in New York. Lobbyists “have done an excellent job of trying to change the subject.” In the Senate, Alabama Republican Richard Shelby, chairman of the Senate Banking Committee, also has warned Congress against encroaching on FASB’s turf. “What is essential is that we have the compensation expense recorded — it’s just good accounting,” said Rebecca McEnally, vice president of the CFA Institute, a nonprofit group that oversees chartered financial analysts. Copyright �2004 TDD, LLC. All rights reserved.

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