Senate Nears Agreement on Accounting Reforms; Stock Options Expensing Appears Dead

The Senate Banking Committee is close to agreement on a compromise version of broad reforms of the accounting profession. The agreement focuses on setting boundaries on accounting firms providing consulting services and on establishing standards for the oversight of accounting procedures. Notably dropped from the compromise was a proposal that was part of a bill introduced by Banking Committee chair Paul Sarbanes, D-MD (the "Public Company Accounting Reform and Investor Protection Act") that would direct the SEC to study the impact of accounting rules on stock options. Advocates for stock options feared the proposal would build momentum for requirements that companies expense stock options on their income statement. Senator Daschle (D-SD) has indicated he may try to add back a similar provision on the floor.

Meanwhile, Senator McCain (R-AZ) was blocked by the Democratic leadership in his effort to force consideration of the Levin-McCain proposal to require companies to account for options in the income statements. The proposal also does not occur in the much weaker House bill, so it appears dead, at least in this legislation. However, proponents of the reform have vowed to introduce the proposal as an amendment to other legislation, and editorial momentum for the change is building. Craig Barrett, CEO of Intel, has suggested requiring expensing just for options granted to the top five corporate officers. Senator Lieberman (D-CT) has expressed an interest in the idea.