[Congressional Record Volume 150, Number 102 (Wednesday, July 21, 2004)]
[Extensions of Remarks]
[Pages E1442-E1443]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                   STOCK OPTION ACCOUNTING REFORM ACT

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                               speech of

                             HON. JIM KOLBE

                               of arizona

                    in the house of representatives

                         Tuesday, July 20, 2004

       The House in Committee of the Whole House on the State of 
     the Union had under

[[Page E1443]]

     consideration the bill (H.R. 3574) to require the mandatory 
     expensing of stock options granted to executive officers, and 
     for other purposes:

  Mr. KOLBE. Mr. Chairman, I rise in opposition to H.R. 3574, the Stock 
Option Accounting Reform Act. This is a highly complex issue with 
compelling arguments on each side. But after carefully weighing these 
views, I oppose H.R. 3574 because it is not good public policy nor is 
it good for investors.
  H.R. 3574 interferes with the independence of the Financial 
Accounting Standards Board (FASB) and the financial accounting 
standard-setting process. Just 2 years ago this body overwhelmingly 
passed and the President signed into law the Sarbanes-Oxley Act of 
2002, which recognized the importance of an independent standard-
setting process free of political pressures. H.R. 3574 risks damaging 
the investor confidence in and the credibility of our capital markets 
that the Sarbanes-Oxley Act sought to restore. FASB--not Congress--has 
the expertise to set accounting standards through an independent 
deliberative process. In the wake of recent corporate scandals we have 
not interfered with FASB rulemaking; it is not prudent to begin doing 
it now.
  FASB's rule will provide greater protections to investors and 
shareholders. Supporters of H.R. 3574 state that expensing stock 
options will hurt the economy; I believe the opposite is true. Allowing 
FASB to promulgate its rule to expense stock options will improve 
investor confidence and increase investment. It will institute a 
standardized approach that will help all investors evaluate the effects 
of stock options upon company earnings on a uniform basis. Even the 
shareholders of Intel Corporation, one of the companies leading the 
fight against stock options expensing, passed a resolution calling for 
employee stock options to be treated as an expense.
  Apart from the issue of FASB independence, another key question is 
whether stock options should be accounted for as an expense or as 
dilution to equity. In the final analysis, I agree with Warren Buffett: 
since both employer and employee place a value on options granted in 
lieu of other compensation, they should be treated as an expense.
  The FASB rule does not prevent companies from using broad-based stock 
option plans. A company can, and should, as good corporate policy, 
continue to grant ownership to its employees with stock options. 
Healthy companies that previously disclosed the intrinsic value of 
compensatory options in the footnotes of financial statements as 
currently required should not suffer from a fall in stock price solely 
as a result of FASB's new rule. Several studies have indicated that, 
provided there is full disclosure, company stock prices will not be 
affected by expensing compensatory stock options.
  Absent from the Sarbanes-Oxley bill was any provision regarding the 
accounting treatment of stock options. Recognizing the need to address 
this issue, I was a cosponsor in the 107th Congress of H.R. 5147, the 
Stock Options Accountability Reform Act, to develop standards of 
financial accounting and reporting related to the treatment of stock 
options. The FASB rule accomplishes this objective, and I cannot 
support Congressional efforts to interfere.

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