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The Financial Accounting Standards Board was dealt a blow Tuesday when the House of Representatives overwhelmingly approved legislation limiting how companies account for employee stock options. The bill, the Stock Option Accounting Reform Act, introduced by Rep. Richard Baker, R-La., dilutes a proposed rule by FASB to require companies to count the cost of options as an expense on their balance sheets. Baker’s measure requires companies starting in 2005 to report the value of stock options granted only to their five top executives. Small businesses with less than $25 million in annual revenue would be exempt from the requirement, while newly public companies would be exempt for three years. The bill also bars the Securities and Exchange Commission, which oversees FASB, from recognizing any new rules on stock-option accounting pending completion of an economic study by the Commerce Department and the Labor Department. House lawmakers voted 313-111 in favor of the Baker bill. The legislation faces an uphill battle in the Senate, where Chairman of the Senate Banking Committee Sen. Richard Shelby, R-Ala. has pledged not to interfere with FASB. “Despite this vote, I remain firmly convinced that Congress should not intervene in the FASB rulemaking process,” Shelby said immediately after the House’s vote. “As I have said before, Congress should let the FASB experts do their job without political interference.” Critics of the bill say expensing of options is essential to improving the accuracy of corporate financial statements. “This is the only form of compensation that may be omitted from financial statements,” said Rep. Paul Gillmor, R-Ohio. But supporters say a mandate to count options against the bottom line would make company income statements more confusing and would discourage talented workers from joining startups. “Stock options are a magnet that attracts workers,” said Rep. Anna Eschoo, D-Calif. “They’re the ones taking a risk and helping companies to grow.” In response to the House’s passage of the Baker bill, a bipartisan group of Senators introduced a resolution to protect FASB’s independence. Sens. Peter G. Fitzgerald and Richard Durbin, both of Illinois, John McCain of Arizona and Carl Levin of Michigan introduced a measure reaffirming FASB’s charter to independently devise standards for the accounting industry. The resolution urges the Senate to refrain from interfering with any board recommendations on improving corporate accounting. Copyright �2004 TDD, LLC. All rights reserved.

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