[House Report 108-616]
[From the U.S. Government Publishing Office]
108th Congress Report
HOUSE OF REPRESENTATIVES
2d Session 108-616
======================================================================
PROVIDING FOR CONSIDERATION OF H.R. 3574, STOCK OPTION ACCOUNTING
REFORM ACT
_______
July 19, 2004.--Referred to the House Calendar and ordered to be
printed
_______
Mr. Sessions, from the Committee on Rules, submitted the following
R E P O R T
[To accompany H. Res. 725]
The Committee on Rules, having had under consideration
House Resolution 725, by a nonrecord vote, report the same to
the House with the recommendation that the resolution be
adopted.
SUMMARY OF PROVISIONS OF THE RESOLUTION
The resolution provides for the consideration of H.R. 3574,
the Stock Option Accounting Reform Act, under a structured
rule. The rule provides one hour of general debate equally
divided and controlled by the chairman and ranking minority
member of the Committee on Financial Services. The rule waives
all points of order against consideration of the bill.
The rule provides that the amendment in the nature of a
substitute recommended by the Committee on Financial Services
now printed in the bill shall be considered as an original bill
for the purpose of amendment, and shall be considered as read.
The rule makes in order only those amendments printed in
this report accompanying the resolution. The rule provides that
the amendments printed in this report may be considered only in
the order printed in this report, may be offered only by a
Member designated in this report, shall be considered as read,
shall be debatable for the time specified in this report
equally divided and controlled by the proponent and an
opponent, shall not be subject to amendment, and shall not be
subject to a demand for a division of the question in the House
or in the Committee of the Whole. The rule waives all points of
order against the amendments printed in this report. Finally,
the rule provides one motion to recommit with or without
instructions.
The waiver of all points of order against consideration of
the bill includes a waiver of clause 4(a) of rule XIII
(requiring a three-day layover of the committee report),
because the report (H. Rept. 108-609, Part I) did not become
available until July 19, 2004, and the bill may be considered
by the House as early as July 20, 2004.
SUMMARY OF AMENDMENTS MADE IN ORDER
(Summaries of amendments derived from information provided
by the sponsor.)
1. Oxley No. 5: Manager's Amendment. Clarifies the original
intent of the bill to ensure that any company that wishes to
voluntarily expense stock options in certain filings required
under the securities laws may do so. (10 minutes)
2. Sherman No. 1: Eliminates the requirement in the bill
that an assumption of zero volatility be used when calculating
the value of stock option expense for the top-five executives.
(10 minutes)
3. Maloney No. 3: Preserves the authority of the Securities
and Exchange Commission (SEC) to establish accounting
principles or standards on its own initiative as the SEC deems
necessary in the public interest or for the protection of
investors. It is intended to preserve the SEC's ability to
prescribe the contents of public filings. (10 minutes)
4. Kanjorski/Castle No. 2: Amendment in the Nature of a
Substitute. Includes findings concerning the SEC authority over
standard setting, the importance of the Financial Accounting
Standards Board (FASB) independence and credible accounting
standards to the economy and investors, the recent actions of
Congress in Sarbanes-Oxley to strengthen the standard-setting
process, the comparative advantage provided to the U.S. by high
quality accounting standards, and the damage to the standard-
setting process of legislative pre-emption. Includes a sense of
the Congress that preserving the integrity of the accounting
standard-setting process and FASB independence is crucial to
the financial reporting system and markets and that the SEC
should be permitted to adopt new standards without
Congressional intervention. Directs the SEC to oversee the
process of setting standards for equity-based compensation to
ensure that all comments are appropriately reviewed and that
any modifications necessary to insure the highest quality
accounting standards are adopted. (20 minutes.)
TEXT OF AMENDMENTS MADE IN ORDER
1. An Amendment To Be Offered by Representative Oxley of Ohio, or His
Designee, Debatable for 10 Minutes.
At the end of subsection (m)(4)(B) of the matter proposed to
be inserted by section 2 of the bill, strike the close
quotation mark and following period and insert the following:
``(5) Voluntary expensing.--Notwithstanding the
requirements of this subsection, issuers may elect to
expense the fair value of all officer and employee
stock options in the annual report of such issuer under
subsection (a)(2), in accordance with the expensing
alternative of Statement of Financial Accounting
Standards Number 123, and any such issuer making such
election in the annual report for a fiscal year shall
not be subject to paragraphs (2) through (4) of this
subsection for such fiscal year.''.
At the end of paragraph (3)(B) of the matter proposed to be
inserted by section 3 of the bill, strike the close quotation
mark and following period and insert the following:
``(C) Exception for voluntary expensing.--
Nothing in this paragraph or in any other
provision of the Stock Option Accounting Reform
Act shall prevent the Commission from
continuing to recognize the expensing
alternative of Statement of Financial
Accounting Standards Number 123 as part of
generally accepted accounting principles for
issuers that elect to expense the fair value of
all officer and employee stock options in the
annual report of such issuer pursuant to
section 13(m)(5) of the Securities Exchange Act
of 1934.''.
2. An amendment To Be Offered by Representative Sherman of California,
or His Designee, Debatable for 10 Minutes
In subsection (m) of the matter proposed to be inserted by
section 2 of the bill, strike
``(3) Fair value.--
``(A) In general.--The''.
and insert
``(3) Fair value.--The''.
In subsection (m)(3) of the matter proposed to be inserted by
section 2 of the bill, strike subparagraph (B).
3. An Amendment To Be Offered by Representative Maloney of New York, or
Her Designee, Debatable for 10 Minutes
At the end of the bill, insert the following:
SEC. 5. CONFIRMATION OF S.E.C. AUTHORITY.
Nothing in this Act shall be construed to impair or limit the
authority of the Commission to establish accounting principles
or standards on its own initiative as the Commission deems
necessary in the public interest or for the protection of
investors.
4. An Amendment in the Nature of a Substitute To Be Offered by
Representative Kanjorski of Pennsylvania, or His Designee, Debatable
for 20 Minutes
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Accounting Standards Integrity
Act''.
SEC. 2. FINDINGS.
Congress finds the following:
(1) The Securities and Exchange Commission has broad
authority to prescribe accounting standards applicable
to issuers of publicly traded securities, and generally
has relied on the Financial Accounting Standards Board
to establish generally accepted accounting standards
for private sector businesses.
(2) Objective accounting standards are essential to
the efficient functioning of the economy and the
capital markets, as investors, creditors, analysts,
auditors, and others rely on credible, transparent, and
comparable results of operations in making decisions
regarding the allocation of capital.
(3) Congress recently acknowledged the importance of
the accounting standard-setting process to our capital
markets and strengthened the the Financial Accounting
Standards Board's independence as part of the Sarbanes-
Oxley Act of 2002, which passed the House of
Representatives and the Senate by votes of 423-3 and
99-0, respectively.
(4) Congress, in the Sarbanes-Oxley Act of 2002, also
recognized the importance of the convergence of United
States and international accounting standards on high
quality accounting standards.
(5) The United States capital markets enjoy a
competitive advantage as a result of the high quality
and integrity of our financial reporting system and the
accounting standards that underlie it and would lose
that advantage over foreign markets if our accounting
standards and policies are considered less than
objective.
(6) Investors benefit from independent and fair
accounting standards that are free from undue political
interference.
(7) The rulemaking authority and credibility of the
Financial Accounting Standards Board may be irreparably
damaged by legislation that preempts the existing
public and fair deliberative process.
(8) The Securities and Exchange Commission of the
United States has the ultimate authority over the
content and process for setting standards for issuers
of publicly traded securities.
SEC. 3. SENSE OF THE CONGRESS.
It is the sense of Congress that--
(1) preserving the integrity of the accounting
standard-setting process and the independence of the
Financial Accounting Standards Board is crucial to the
functioning and transparency of the financial reporting
systems and capital markets of the United States; and
(2) the Securities and Exchange Commission should be
permitted to recognize or adopt new accounting
standards without Congress or other parties intervening
in the process before it is completed to override or
delay recognition of those standards.
SEC. 4. SECURITIES AND EXCHANGE COMMISSION MANDATE.
Consistent with its established procedures, the Securities
and Exchange Commission shall--
(1) oversee the process of accounting standard-
setting to ensure a process that assures that all of
the comments, concerns, and recommendations gathered
during the comment period on any proposal regarding
equity-based compensation are subject to appropriate
review; and
(2) before a final standard is adopted, ensure that
any modifications are made that are appropriate for the
purposes of adopting the highest quality accounting
standards that will best serve the purposes of our
financial reporting system and the United States
economy as a whole.