2004 shaping up as a busy year.

• Author: Prysock, Mark
• Position: Washington Insights

Most observers expect 2004 to be an exceptionally busy year in Congress as both parties jockey for position before the November elections. Corporate governance remains a popular topic, with both houses turning their attention to the mutual fund industry and the perceived problems of late trading and market timing. An international tax reform measure must be finished before March 1 if the United States is to avoid punitive trade sanctions by the European Union.

Also on the tax front, Congress must decide whether to extend numerous expiring tax provisions, many of which expired in 2003. Healthcare remains a hot-button issue, and will almost certainly consume Congress' time. Given this crowded legislative agenda, many are asking what has become of the stock option issue, and whether Congress will continue trying to change stock option accounting standards.

The principal stock option accounting bills under consideration are the Dreier/Eshoo bill in the House (H.R. 1372) and the Ensign/Boxer bill in the Senate (S. 979). These companion bills, entitled the "Broad-Based Stock Option Transparency Act(s) of 2003," direct the Securities and Exchange Commission (SEC) to require enhanced disclosures of employee stock options, and to study the economic impact of broad-based stock option plans.

Enhanced disclosures required in the bills include: 1) a discussion of the dilutive effect of stock option plans (written in accordance with something called the "Plain English Handbook"); 2) expanded disclosure of the dilutive effect of stock options on the company's earnings per share number; 3) prominent placement and increased comparability of all stock option-related information; and 4) a summary of stock options granted to the five most highly compensated executive officers, including their outstanding options.

Of great importance to foes of stock option expensing, H.R. 1372 places a three-year moratorium on the SEC recognizing any new accounting standard relating to stock options. At the end of that period, the commission would be required to report to Congress on the effectiveness of the new disclosures. Finally, the bill would require a Commerce Department study on the impact of broad-based employee stock option plans on expanding corporate ownership, recruiting skilled workers, stimulating research and innovation, and growth in the U.S. economy.

Both proposals have been quietly gaining support. The Dreier/Eshoo bill currently has 106 co-sponsors, while...