Senators Pledge Support for FASB

They maintain that a just-passed House bill ''would severely undercut the independence and integrity'' of the accounting standards board.
Stephen TaubJuly 22, 2004

Stock-option expensing is heating up on Capitol Hill.

On the same day that the House of Representatives passed H.R. 3574 — a bill aimed at blocking provisions of a Financial Accounting Standards Board proposal that would require companies to expense employee stock options — a bipartisan group of senators introduced a measure urging their chamber not to pass similar legislation.

Peter Fitzgerald (R-Ill.), John McCain (R-Ariz.), Carl Levin (D-Mich.), and Richard Durbin (D-Ill.) introduced a resolution to “protect the independence and integrity of an important accounting board under assault by some members of Congress.”

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The resolution, the senators said in a statement, reaffirms the original purpose of FASB, which was to devise independent accounting standards that ultimately would give the public straightforward and accurate information about the financial health of corporations. They added that H.R. 3574 “would severely undercut the independence and integrity of FASB.”

Fitzgerald observed that the passage of the House bill is “sadly ironic” because it comes less than two weeks after the indictment of Kenneth Lay, the former chairman of Enron Corp. According to the statement, Enron’s top 29 executives “cashed in on more than $1.1 billion in stock options” in the three years before the company declared bankruptcy.

“The House of Representatives proved today that it learned little from the Enron scandal,” said Fitzgerald, in a statement. “The lack of accounting transparency is effective camouflage for those who want to abuse shareholders. Congress moved to increase accounting transparency with the landmark Sarbanes-Oxley Act of 2002….This is no time to turn back the clock on corporate governance reforms.”

The senators’ statement also called attention to a February 2002 Senate hearing, during which Fitzgerald elicited a notable comment from former Enron chief executive officer Jeffrey Skilling. According to the statement, Skilling told the senators that when Congress blocked FASB’s earlier attempt to require stock-option expensing, in 1994, the intervention allowed corporations like his to inflate their profitability on income statements.