House OKs option expensing limits

Legislation limiting stock options expensing was passed by the U.S. House of Representatives Tuesday in a direct challenge to accounting rulemakers who want companies to count the cost of options on their financial statements.

The bill by Louisiana Republican Rep. Richard Baker, which passed 312-111, would blunt efforts by the Financial Accounting Standards Board (FASB) to make companies count options as a business expense.

The bill faces an uphill climb in the Senate. But backers hope the House vote will make FASB rethink its expensing plan, which they say will hurt companies and the economy.

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"In extraordinary circumstances, and I believe this is one of those rare occasions, FASB's rule-making should be halted when its proposal will harm our economy," said Rep. Mike Oxley, Ohio Republican and House Financial Services Committee chair.

Stock options, which give holders the right to buy shares in the future at a preset price, are currently only required to be reported in footnotes of companies' financial statements. Critics say deducting them from profits would give investors a better picture of profitability. Some companies voluntarily expense options.

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In March, FASB proposed requiring companies to deduct the cost of stock options from their profits, and the board is expected to complete this rule in the coming months.

Baker's bill would require expensing only of options given to the top five executives of a company. The bill would nullify any expensing rule affecting other options pending a government study on the economic effect of expensing.