OPPOSE S. 1890 -- KEEP POLITICS OUT OF ACCOUNTING STANDARDS!

· We have all witnessed the devastating effects and loss of investor confidence from companies intentionally violating or perversely manipulating accounting requirements.

· Imagine the impact on the system, and on investors' trust in financial reports, if the accounting standards themselves were being purposefully biased toward special interest objectives rather than the objectives of accurate and transparent financial information.

· U.S. financial markets remain the envy of the world due to the quality, timeliness and credibility of the financial information and disclosures provided by companies. The result is better allocation of resources and lower overall cost of capital. Achieving what we have and improving on it depend on a standard-setter that operates independent of public and private special interests.

· S. 1890, "The Stock Option Accounting Reform Act" ("S. 1890") would establish the dangerous precedent that Congress is willing to intervene in the independent, objective accounting standard-setting process to pursue objectives other than the most accurate and transparent financial reporting.

· It would send a clear and unmistakably signal encouraging more and more special interest groups to pursue similar interventions to prevent or delay improvements in financial reports.

· S. 1890 would undo the progress made by Sarbanes-Oxley Act of 2002 and the recent Securities and Exchange Commission ("SEC") Policy Statement reaffirming the FASB as the nation's accounting standard setter. One reason for these recent steps was to protect the standard-setting process from political intervention.

· S. 1890 would insert the Congress directly into the standard-setting process by mandating which stock compensation should be expensed and by what methodology, as well as establishing special exemptions for small businesses. Nothing could be farther from the independence mandated for these matters by Sarbanes-Oxley than Congress itself establishing such standards.

· S. 1890 would also require the SEC to delay the enforcement of accounting standards pending an "economic impact" study. But the only proper economic consideration in setting accounting standards is that they come as close as possible to accurately measuring and reporting the economic reality and a complete and faithful picture of the transactions of companies.

· The role of the FASB is to pursue transparency and accuracy in accounting standards, not to choose among competing public policies. The FASB designs the ruler. It is for others to decide what to do with the measurements.

· S. 1890 suggests that accounting standards should be used to encourage politically favored policies. Whatever the virtue of such policies, they should not be advanced by "bending the ruler" by which accounting standards measure the costs of transactions. Once the standards are distorted to serve some policy goals, it becomes impossible to trust the accuracy of any financial reporting.

· The FASB currently plans to issue a proposed standard on equity-based compensation for public comment in the first quarter of next year. Prior to making any final decisions on any changes to current standards, the FASB will consider, at public meetings, all of the input received in response to its proposal.

· Of note, although S. 1890 would require that fixed plan employee stock options be expensed for the Chief Executive Officer and the 4 most highly compensated executive officers, any perceived improvement to the reporting of compensation for those 5 employees is illusory.

· S. 1890 would require that if a pricing model were used to determine the value of the compensation the "assumed volatility of the underlying stock shall be zero." Many, if not most, valuation experts believe that such a method is conceptually and practically unsound. It does not represent the "fair value" of the compensation as suggested by the S. 1890. Moreover, the method can be easily manipulated to result in a de minimis or zero expense.