Stock Option Accounting Reform Act

(This measure has not been amended since it was reported to the House on July 15, 2004. The summary of that version is repeated here.)

Stock Option Accounting Reform Act - (Sec. 2) Amends the Securities Exchange Act of 1934 to require an issuer of registered securities to show as an expense in its annual report the fair value of all stock purchase options granted after December 31, 2004, to: (1) 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 (2) the four most highly compensated executive officers (other than a chief executive officer) that were serving as executive officers of an issuer at the end of the most recent fiscal year ("named executive officer").

Defines the fair value of an option to purchase such stock.

Exempts small business issuers from the Act's requirement.

(Sec. 3) Amends the Securities Act of 1933 to prohibit the Securities and Exchange Commission (SEC) from recognizing as "generally accepted" any accounting principle relating to the expensing of stock options unless it complies with both: (1) specified expense recomputation requirements; and (2) a required joint study by the Secretaries of Commerce and of Labor of the economic impact of the mandatory expensing of employee stock options.

Requires the recomputation and re-reporting of the expense of a stock purchase option that is exercised, to equal the difference between the price of the underlying stock and the exercise price.

Requires the re-reporting as a reduction of the total expense originally required to be reported if the option expires or is forfeited.

(Sec. 4) Directs the SEC to require each issuer to include in its periodic report more detailed information regarding stock option plans, stock purchase plans, and other arrangements involving an employee acquisition of an equity interest in the company, including: (1) a discussion, written in accordance with the Plain English Handbook published by the SEC Office of Investor Education and Assistance on the dilutive effect of stock option plans; (2) expanded disclosure of the dilutive effect of employee stock options on the issuer's earnings per share; (3) prominent placement and increased comparability and uniformity of all stock option related information; (4) the number of outstanding stock options; (5) the weighted average exercise price of all outstanding stock options; and (6) the estimated number of stock options outstanding that will vest in each year.

Written by the nonpartisan Congressional Research Service. All summary versions on Congress.gov