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A year after the passage of Sarbanes-Oxley, Congress has proposed a bill that undercuts the intent of the legislation.
Julia Homer, CFO Magazine
August 1, 2003
The Sarbanes-Oxley Act of 2002 was passed in an effort to reform corporate financial reporting and restore confidence in the U.S. capital markets. Now, one year later, Congress has proposed a bill that undercuts the intent of the legislation. H.R. 1372, as Craig Schneider explains in our cover story, "Who Rules Accounting?" , would require the SEC to spend three years studying the impact of stock-option plans on the economy, and impose a moratorium on new FASB rules related to options.
In other words, companies wouldn't have to expense stock options for at least three years. The legislators supporting the bill are no doubt expressing the wishes of their constituents, and no doubt some of those constituents are start-ups for which stock options are the incentive of choice.
But we've been down this road before — 10 years ago, in fact. The last battle between FASB and Congress over accounting for stock options left FASB licking its wounds and companies free to reward managers for acting like shareholders. Stock-option grants distorted both balance sheets and corporate decision making, enriching a few lucky executives at the expense of many shareholders.
What's oddest about this congressional reprise is that it comes at a time when nonexpensed stock options have generally lost favor. TheBig Four accounting firms have accepted expensing as the appropriate accounting treatment for options, and many companies, including Microsoft, have ditched them altogether.
The fact that H.R. 1372 would reinstate a mechanism so widely considered flawed is bad enough. But worse, Congress is once again infringing on FASB's turf.
On a happier note, CFO magazine was recently honored to receive the Magazine of the Year award from the American Society of Business Publication Editors. The magazine and our CFO IT quarterly also received nine other national and eight regional editorial and design awards from ASBPE, the strongest performance among the 380 magazines in the awards competition.