VideoA Securities and Exchange Commission official has thrown himself into the debate over whether companies should expense stock options.
Speaking at an American Enterprise Institute conference on expensing stock options, commissioner Paul Atkins said he feared the Financial Accounting Standards Board (FASB) was moving toward a proposed rule for political reasons, not accounting ones, according to Reuters.
"I'm not sure that the presented fix doesn't create more problems than it actually solves," Atkins reportedly said, emphasizing he was speaking personally and not on behalf of the SEC. (See "Who Rules Accounting?" for more.) "Putting a fair value on something as complicated as long-term stock options is almost an impossible task."
FASB is expected to issue a proposed rule sometime this year that would require companies to expense stock options, but probably using the binomial method of accounting and not the widely known Black-Scholes model. The rule might be proposed as early as next month, according to Friday's Washington Post.
Stock options have come under fire from critics who maintain that they encourage top managers to enrich themselves by artificially raising their companies' stock prices; supporters of stock options who oppose mandatory expensing argue that options encourage managers to make decisions that benefit the company over the long term. (To find out more about the latest trends in executive compensation, read "Bonus Babies.")
"My own fear about where this is going is that FASB is basically getting into an area that is more of a political issue than a technical accounting issue," said Atkins, according to the Post. Atkins also expressed concern that FASB was trying to make U.S. accounting standards converge with international standards that are also moving toward mandatory options expensing. While convergence is a laudable goal, he reportedly added, "in an effort to reach this goal we cannot sacrifice the integrity and reliability of our financial statements."
He also feared mandatory expensing could be an attempt to dissuade companies from using stock options as compensation, adding that "FASB should not be dictating what type of compensation should be paid by corporations to employees."
More than 350 companies expense options or have announced that they intend to do so, according to Reuters.
Turning Up the Heat on Parmalat Auditors
Late last week two employees of Deloitte and Touche, Adolfo Mamoli and Giuseppe Rovelli, were added to the list of 25 suspects in the Parmalat fraud case, according to the Associated Press. None have yet been charged.
Luca Sala, a former official at Bank of America, was also placed on the list.
Deloitte and Touche officials in Milan announced that they had not received confirmation that two employees were under investigation. The firm added, however, that Mamoli had signed off on the balance sheets of Parmalat SpA's parent company, Parmalat Finanziaria, from 1999 to 2001 and that Rovelli did so after that date.
Two of eight individuals arrested shortly after the Parmalat scandal broke in late December were from auditor Grant Thornton.
On Thursday, London-based Grant Thornton International, the umbrella organization for dozens of international member firms, said it had expelled the Italian branch, Grant Thornton SpA, as a result of the scandal.
"Grant Thornton SpA has been unable to provide sufficient assurances or access to the appropriate information and people in an acceptable timeframe," said David McDonnell, CEO of the umbrella firm, in a statement. "We have lost confidence in Grant Thornton SpA and are therefore acting clearly and decisively to protect our clients and the reputation of all of the other independent firms in the international network."
Grant Thornton's Italian branch was Parmalat's chief auditor until 1999, when Deloitte and Touche took over, though after that date Grant Thornton continued to audit many key Parmalat subsidiaries, including the offshore entity that falsely claimed to have $4.95 billion on its books.
Parent company Parmalat Finanziaria, which is currently in bankruptcy protection and being operated by new management, fired Deloitte and Touche as its auditor on Thursday, a day after it removed Grant Thornton as auditor of the company's core unit, Parmalat SpA.
Lea Fastow's Plea Bargain Collapses
Lea Fastow's apparent pact felt apart at noon on Friday when her lawyers decided not to sign off on a plea of guilty to one count of tax evasion. The proposed agreement would have left her sentence up to a federal judge who had indicated he wanted a longer term than the five months she had negotiated, according to the Houston Chronicle.
This development throws into doubt a plea deal reportedly hammered out by lawyers for her husband, former Enron chief financial officer Andrew Fastow. According to Reuters, that agreement would include a 10-year prison sentence and $20 million payment to settle civil charges by the Securities and Exchange Commission.
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