text: SECTION 1. SHORT TITLE.
  
      This Act may be cited as the ``Stock Option Accounting Reform 
  Act''.
  
  SEC. 2. MANDATORY EXPENSING OF STOCK OPTIONS HELD BY HIGHLY COMPENSATED 
                OFFICERS.
  
      Section 13 of the Securities Exchange Act of 1934 (15 U.S.C. 78m) 
  is amended by adding at the end the following:
      ``(m) Mandatory Expensing of Stock Options.--
              ``(1) Named executive officer.--As used in this subsection, 
          the term `named executive officer' means--
                      ``(A) all individuals serving as the chief 
                  executive officer of an issuer, or acting in a similar 
                  capacity, during the most recent fiscal year, 
                  regardless of compensation level; and
                      ``(B) the 4 most highly compensated executive 
                  officers, other than an individual identified under 
                  subparagraph (A), that were serving as executive 
                  officers of an issuer at the end of the most recent 
                  fiscal year.
              ``(2) In general.--Subject to paragraph (4), every issuer 
          of a security registered pursuant to section 12 shall show as 
          an expense in the annual report of such issuer filed under 
          subsection (a)(2), the fair value of all options to purchase 
          the stock of the issuer granted after December 31, 2004, to a 
          named executive officer of the issuer.
              ``(3) Fair value.--
                      ``(A) In general.--The fair value of an option to 
                  purchase the stock of the issuer that is subject to 
                  paragraph (2) shall be--
                              ``(i) equal to the value that would be 
                          agreed upon by a willing buyer and seller of 
                          such option, who are not under any compulsion 
                          to buy or sell such option; and
                              ``(ii) shall take into account all of the 
                          characteristics and restrictions imposed upon 
                          the option.
                      ``(B) Pricing model.--To the extent that an option 
                  pricing model, such as the Black-Scholes method or a 
                  binomial model, is used to determine the fair value of 
                  an option, the assumed volatility of the underlying 
                  stock shall be zero.
              ``(4) Exemptions.--
                      ``(A) Small business issuers.--This subsection 
                  shall not apply to an issuer, if--
                              ``(i) the issuer has annual revenues of 
                          less than $25,000,000;
                              ``(ii) the issuer is organized under the 
                          laws of the United States or Canada;
                              ``(iii) the issuer is not an investment 
                          company (as such term is defined under section 
                          3 of the Investment Company Act of 1940 (15 
                          U.S.C. 80a-3));
                              ``(iv) the aggregate value of the 
                          outstanding voting and non-voting common equity 
                          securities of the issuer held by non-affiliated 
                          parties is less than $25,000,000; and
                              ``(v) in the case of an issuer that meets 
                          the criteria in clauses (i) through (iv) and is 
                          a majority owned subsidiary, the parent of the 
                          issuer meets the requirements of this 
                          paragraph.
                      ``(B) Delayed effectiveness.--The requirements of 
                  this subsection shall not apply to an issuer before the 
                  end of the 3-year period beginning on the date of the 
                  completion of the initial public offering of the 
                  securities of the issuer, and shall only apply to an 
                  option to purchase the stock of an issuer granted after 
                  such date.''.
  
  SEC. 3. PROHIBITION ON EXPENSING AND ECONOMIC IMPACT STUDY.
  
      (a) Prohibition.--Section 19(b) of the Securities Act of 1933 is 
  amended by adding at the end the following:
              ``(3) Prohibition on expensing standards.--
                      ``(A) In general.--The Commission shall not 
                  recognize as ``generally accepted'' any accounting 
                  principle established by a standard setting body 
                  relating to the expensing of stock options unless--
                              ``(i) it complies with the requirements of 
                          subparagraph (B); and
                              ``(ii) the economic impact study required 
                          under section 3(b) of the Stock Option 
                          Accounting Reform Act of 2003 has been 
                          completed.
                      ``(B) Requirements.--A standard referred to in 
                  subparagraph (A) shall require that--
                              ``(i) if an option to purchase the stock of 
                          an issuer that is subject to the requirements 
                          of section 13(m) of the Securities Exchange Act 
                          of 1934 is exercised, forfeited, or expires 
                          unexercised, any expense that had been reported 
                          under that section 13(m) with respect to such 
                          option shall be reported in the fiscal year in 
                          which the option expires or is forfeited as a 
                          reduction of the total expense required to be 
                          reported under that section 13(m) during that 
                          fiscal year; and
                              ``(ii) to the extent that any reduction 
                          required under clause (i) exceeds total option 
                          expenses for any fiscal year, such excess shall 
                          be reported as income with respect to options 
                          to purchase the stock of the issuer.''.
      (b) Economic Impact Study.--The Secretary of Commerce and the 
  Secretary of Labor shall conduct and complete a joint study on the 
  economic impact of the mandatory expensing of all employee stock 
  options, including the impact upon--
              (1) the use of broad-based stock option plans in expanding 
          employee corporate ownership to workers at a wide range of 
          income levels, with particular focus upon non-executive 
          employees;
              (2) the role of such plans in the recruitment and retention 
          of skilled workers;
              (3) the role of such plans in stimulating research and 
          innovation;
              (4) the effect of such plans in stimulating the economic 
          growth of the United States; and
              (5) the role of such plans in strengthening the 
          international competitiveness of businesses organized under the 
          laws of the United States.
target: Stock Option Accounting Reform Act - Amends the Securities Exchange Act of 1934 to require an issuer of registered securities to show as an expense in its mandatory annual report the fair value of all stock purchase options granted to certain of its senior executive officers after December 31, 2004.
  
  Exempts small business issuers from such requirement.
  
  Amends the Securities Act of 1933 to require reporting of: (1) stock option expenses as a reduction of the total expense in the fiscal year in which they expire or are forfeited; and (2) as income any excess by which such reduction exceeds total option expenses for any fiscal year.
  
  Requires any accounting principle recognized as "generally accepted" by the Securities and Exchange Commission (SEC) regarding the expensing of stock purchase options to comply with this Act. Denies recognition to any such accounting principle until the Secretaries of Commerce and of Labor complete a joint study on the economic impact of mandatory expensing of all employee stock options.
feat_title: A bill to require the mandatory expensing of stock options granted to executive officers, and for other purposes.