Options Debate to Continue When Congress Reconvenes

The debate on expensing stock options is about to reach a climax.

The Financial Accounting Standards Board, which sets accounting standards, has promised to put out a final rule as soon as October that would require public companies to recognize the cost of options on their income statements. But expensing opponents will have a chance to derail that rule when the U.S. Senate reconvenes next week.

Last month, the U.S. House of Representatives voted overwhelmingly to override the expensing rule. The vote came shortly before Congress' summer recess, so the coming session will essentially be the Senate's first chance to deal with the issue since the House vote.

Despite the summer lull in the halls of Congress, the fighting over options has continued outside.

Earlier this month, William Donaldson, the chairman of the Securities and Exchange Commission sent a letter to Senate Majority Leader Bill Frist, R-Tenn., and 15 other senators, urging them not to follow the House's lead by interfering on the options expensing issue.

Meanwhile, FASB itself has continued to deliberate the issue. The regulatory body held two board meetings earlier this month to discuss the particulars of its options expensing proposal.

Under current accounting rules, companies can choose how to recognize the cost of options when they grant them. Many companies, particularly those in the technology and Internet industry, have chosen to recognize only the intrinsic value of the options at grant, which in most cases is zero.

But more than 500 companies have now chosen an alternate method. These companies, which include Amazon.com (AMZN), have chosen to expense the estimated lifetime value of the options they grant. Depending on the size of the grants, such expenses can run into the tens of millions of dollars.