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The last, best hope for opponents of stock option expensing may be to push the government to delay implementation of the Financial Accounting Standards Board proposal. With time running out before Congress recesses for the year and the chances of getting legislation passed to derail FASB’s proposal slim at best, business interests are increasing pressure on the Securities and Exchange Commission to postpone the measure for at least a year. The SEC oversees FASB, a private entity that sets accounting rules. Opponents argue that internal control provisions of the Sarbanes-Oxley Act that take effect in coming months are more important than proceeding immediately with a move to require companies to deduct the cost of options from corporate earnings. “Sen. Enzi strongly believes that the implementation of the internal control provisions of the law should take precedence over the new stock option expensing statement,” the Wyoming senator’s spokesman said in an e-mail. Enzi is a prime sponsor of legislation that would replace FASB’s plan with a requirement that companies expense options only for their top five executives. The spokesman added that the senator “urges the SEC to do all that it can to help small companies in their internal controls compliance,” even if that means changing the implementation date for option expensing. SEC action is not out of the question. The agency’s chief accountant, Donald T. Nicolaisen, has repeatedly expressed concern over the timing of the options rule and even suggested in public comments that FASB should consider a delay because companies and auditors are busy complying with Sarbanes-Oxley. Nicolaisen did not return a call for comment. FASB also conceded during a roundtable discussion in June that more time may be necessary. “We are hearing people say they are stretched to the maximum,” FASB chairman Robert Herz said after the June meeting. Yet few options-expensing opponents are willing to bet on FASB postponing the rule. “I don’t think anyone really expects FASB to delay,” said Jeff Peck, chief lobbyist for the International Employee Stock Options Coalition, a Washington-based lobbying group. “The thinking is they will proceed according to their time line.” Unless the SEC intervenes, FASB is expected to issue the expensing rule by December and make it effective as early as January. FASB supporters say there are solutions far short of delaying the rule that could be imposed to help businesses comply with Sarbanes-Oxley and options expensing. “Our view is that FASB should complete its project this fall, but allow companies to delay implementation until July 1, 2005, and restate earnings for the first two quarters of the year,” said Rebecca McEnally, vice president for advocacy at the CFA Institute, a Charlottesville, Va., group representing chartered financial analysts. Delaying the FASB proposal for a year also would give foes more time to convince Congress to intervene and enact the Enzi bill or a similar measure. How to value employee stock options is one of the most hotly contested issues in FASB’s proposal. A number of business interests, including the National Association of Manufacturers and the Business Roundtable, argue that the valuation methods outlined in the plan haven’t been adequately tested. Peck said a 12-month delay could offer time to test these methods and address the problems small companies have with the standard. If that happens, there is little likelihood of going ahead with legislation to stop FASB. Earlier this month, a trio of technology titans met with FASB board members with a proposal for a new valuation method. Cisco Systems Inc., Genentech Inc. and Qualcomm Inc. presented the board with an alternative approach to value options that would generally allow companies to report much lower expenses than the methods currently recommended by FASB. The plan would allow companies to estimate the volatility of their stock price by using an index, such as the Standard & Poor’s 500, rather than calculating the volatility of an individual stock over time. Copyright �2004 TDD, LLC. All rights reserved.

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