[Congressional Record Volume 149, Number 22 (Thursday, February 6, 2003)]
[Extensions of Remarks]
[Page E141]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




    INTRODUCING THE ENDING THE DOUBLE STANDARD FOR STOCK OPTIONS ACT

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                        HON. FORTNEY PETE STARK

                             of california

                    in the house of representatives

                      Wednesday, February 5, 2003

  Mr. STARK. Mr. Speaker, I rise today to reintroduce legislation to 
require accuracy in the way corporations report profits and account for 
stock options on their Security and Exchange Commission (SEC) earnings 
reports. I'm pleased to be joined by Representatives Earl Pomeroy, 
Henry Waxman, George Miller, John Olver, Jan Schakowsky, Bernie 
Sanders, Bill Lipinski, and Raul Grijalva in introducing this important 
bill. Senators Levin and McCain recently introduced companion 
legislation in the Senate.
  Under current law, companies can deduct stock option expenses from 
their income taxes as a cost of doing business, just like they deduct 
employee wages. However, companies are not required to similarly report 
stock option expenses on their SEC financial statements to 
stockholders. Therefore, SEC reports don't accurately reflect a 
company's actual earnings because there is an outstanding compensation 
liability that is not accounted for in the earnings statement. This 
misleads employees and investors on the financial standing of their 
investment.
  My bill, Ending the Double Standard for Stock Options Act, would help 
institute accuracy in the reporting of corporate profits. It would 
require corporations to report stock options as expenses on their SEC 
earnings statements in order to receive a tax deduction for stock 
option compensation on the IRS income statement.
  Last year, employees and investors faced an onslaught of accounting 
scandals that led to bankrupt corporations, diminished pension funds 
and mass lay-offs. While Congress addressed many of the accounting 
problems that led to the deluge of scandals, the treatment of stock 
option expensing has not been addressed. Without this reform, 
corporations will continue to mislead investors on the real value of 
their investments and undermine the integrity of the market.
  The Financial Accounting Standards Board or FASB is the self-
regulated accounting board that oversees SEC reporting. FASB recommends 
that companies record stock options as an expense on their SEC 
financial earnings statement, but does not require that stock options 
be treated as an earnings expense. In fact, stock options are the only 
form of compensation not treated as an earnings expense at any time. 
FASB is currently rethinking this standard due to pressure from 
investors and its international counterpart, the International 
Accounting Standards Board or IASB.
  At the end of this year, IASB will issue new accounting standards 
requiring companies to expense stock options. The FASB is expected to 
announce in the next month whether it too will issue new stock option 
accounting standards similar to those of IASB.
  It is my hope that FASB will come out with a decision to require 
expensing of stock options. But as we've seen in the past, political 
and corporate pressure may dissuade FASB from providing more 
transparency to earnings report requirements. I hope the introduction 
of this bill will help encourage FASB to do the right thing and require 
companies to account for stock options. However, if they succumb to 
industry pressure, Congress should enact this bill and fix the problem 
once and for all.
  Prior to last year's scandals, nearly all companies relegated their 
stock option expenses to merely a footnote in their SEC report. Yet, 
these expenses were not reflected in their bottom line earnings. Since 
last year's scandals, many more companies have responded to investors' 
demands that stock options be expensed in earnings reports. Over 120 
companies, including Amazon.com, Coca-Cola, and General Motors, have 
announced that they will voluntarily expense stock options on their SEC 
earnings reports in 2003. They should be commended. Nonetheless, many 
other companies have claimed that they will not expense stock options 
until forced to do so.
  Again, Congress took important steps last year to address statutory 
flaws relating to corporate governance and the accounting industry. My 
legislation, ``Ending the Double Standard for Stock Options'' is 
another needed step to help prevent companies from misrepresenting 
their value to their investors and employees. I urge my colleagues from 
both sides of the aisle to join me in supporting the efforts of the 
IASB. Congress ought to heed the call of investors and ordinary 
Americans to ensure accurate reporting of profits and stock options 
expensing. I hope my colleagues will join me in passing this bill this 
year.

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