Stock options bill will undermine FASB - asserts Donaldson

US Congress should stay out of the debate over expensing stock options and let the Financial Accounting Standards Board handle it, William Donaldson, US Securities and Exchange Commission chairman, has said, Reuters reports from Washington.
In an August 19 letters to congressional leaders, Mr Donaldson criticised a bill that challenges a FASB move to require that companies count the cost of options as business expenses. The bill passed the House of Representatives last month.
The letter, made public on Friday night, marks an escalation in Mr Donaldson's role in the struggle over options expensing. If enacted by the Senate, the bill by Louisiana Republican Richard Baker would undermine FASB and "disrupt the independent, private sector accounting standard-setting process", Mr Donaldson said in the letter. "FASB's consideration of this proposed standard regarding stock options should be allowed to run its full course."
An option is the right to buy a company's stock at a set price in the future. If the price on the market tops the option strike price, the option holder can make a risk-free profit.
Options became a key part of executive pay in the 1990s, with Supporters of the trend saying It aligned executives' interests with those of shareholders. But after numerous corporate scandals, critics options contributed to a corner-cutting culture bent on short-term stock price gains.
One reason options were issued so freely is that companies need not count them against profits as routine expenses, such as salaries or bonuses. Companies now only have to report options' cost in the footnotes of financial reports.
FASB, which sets US corporate accounting standards, is moving toward requiring that options be expensed, or deducted against profits. This would give investors a clearer picture of profitability, say backers of FASB.
FASB's efforts are opposed by high-tech companies, which issue options widely, by Mr Baker and by others, who argue that expensing would hurt a vibrant industry and the wider economy.
Mr Baker's bill would require expensing only of options given to the top five officers of a company. Small businesses would be exempt.
The bill also would bar the SEC from recognising any expensing rule until after a year-long study of its effect.
Despite a fierce corporate lobbying campaign to block FASB, hundreds of companies already expense options, including high-tech giants such as Microsoft.