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Former White House economic adviser Lawrence B. Lindsey expressed misgivings about rules that will require companies to expense employee stock options starting June 15, a move likely to bolster opponents of the controversial regulations. Lindsey, president and chief executive of the Lindsey Group consulting firm and formerly President George W. Bush’s assistant for economic policy, sent a letter dated Feb. 18 to Securities and Exchange Commission Chairman William Donaldson stating that if the accounting rules are adopted “as is,” firms may find that their reports are ultimately inaccurate. “The analysis done by our panel of experts found that if FASB’s rule were implemented on the current timeline, the quality of information available to investors would be inadequate and potentially misleading,” Lindsey said. Lindsey’s colleagues include professor Randall Kroszner of the University of Chicago, a former member of the President’s Council of Economic Advisors; professor Charles Calomiris of Columbia University, and Dr. Kevin Hassett of the American Enterprise Institute. The new rule promulgated by the Financial Accounting Standards Board requires U.S. companies to report employee stock options as an expense, just like salaries or any other form of compensation. The SEC, which has oversight authority over FASB, could reject the FASB rules, or, more likely, provide guidance on how to value options. They are expected to rule on the matter by mid-March. FASB has recommended a complicated formula that attempts to project option values. Lindsey said the recommended models would produce a wide range of results with different sets of assumptions. He added that flawed models could lead to misleading financial information and expose chief executives to unforeseen legal liabilities. “These technical challenges should be addressed before stock option expensing is implemented,” he said. Last year, opponents of the rules tried to enact legislation that would delay the rule for at least a year as well as limit the expensing requirement to the top five executives of each public company. The House of Representatives overwhelmingly approved the measure by a 312-111 vote, but Senate Banking Committee Chairman Richard Shelby, R-Ala., refused to take it up in his committee. Copyright �2005 TDD, LLC. All rights reserved.

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