The House should be ashamed today.

Two years after Jeff Skilling of Enron testified before the Congress about how stock option accounting can be abused to overstate earnings, and two years after we passed the Sarbanes-Oxley Act to clean up corporate and accounting fraud, the House has come to this Floor to pass legislation sanctifying phony accounting. We told the Financial Accounting Standards Board (FASB) to fix this problem - now we're telling them, and investors, that the political fix is in.

H.R. 3574 is a bad bill. Federal Reserve Board Chairman Alan Greenspan warned in Congress that "it would be a bad mistake for the Congress to impede FASB" because the proposed FASB changes to accounting for stock options "strike me as correct." Famed investor Warren Buffett says the legislation is "nonsensical" based on "fuzzy math" and "Alice-in-Wonderland assumptions."

Why does he say that? Well the bill mandates that, when a company is calculating the expense of the options given to the five highest paid executives - the only ones allowed to be expensed - it must assume that the stock price has zero volatility, i.e., it never goes up or down. As Buffett notes, the only reason for making such an assumption is to "significantly understate" the value of the few options the bill allows to be accounted "to enable chief executives to lie about what they are truly being paid and to overstate the earnings of the companies they run."

The Chairman of the Securities and Exchange Commission (SEC) also opposes this legislation: it runs counter to the SEC's mandate to protect investors and to make sure that companies provide honest and transparent information.

The bill gets worse. Not content to sprinkle holy water on bad numbers, it goes on to prohibit the voluntary expensing of stock options by companies that want to present honest accounts. There are currently over 575 companies, including Ford, General Motors, Microsoft, and Citigroup, voluntarily expensing their options at fair value. If this bill were enacted in the form reported by the Committee on Financial Services, they would have to cease doing so and restate their financials at substantial cost and disruption to the market. Only after a hearing on the subject before the Committee on Energy and Commerce did the manager of the bill produce a Floor amendment to fix this flaw.

Finally, H.R. 3574 is opposed by FACTS (the Financial Accounting Coalition for Truthful Statements), a broad coalition of 30 pension funds, consumer groups, labor unions, and investors. Their July 19, 2004, statement to the House warns that "the proposed legislation is worse than current accounting practice."

I urge my colleagues to vote YES on the Kanjorski substitute, which affirms the independence of FASB and the importance of honest and credible accounting standards. If it fails, vote NO on H.R. 3574.