Letter to Financial Times

Dear Sir/Madam:

Are we this easily duped? The Financial Times (June 3, 2005) reported that President George Bush nominated Christopher Cox to be the next chairman of the SEC and called on Cox to "vigorously enforce the rules and laws that guarantee honesty" in US capital markets and boardrooms. In the boardrooms of US companies, executives are meticulous about lowering taxable income by deducting stock-based compensation as an operating expense. They then turn and lobby Congress and the SEC to overrule FASB's attempts to bring that same expense into the income statement.

Canadian companies listed on the NYSE include stock-based compensation as an expense in the income statement, but for companies in the US, honesty in reporting takes on a different meaning. By SEC decree, US companies continue to ignore stock-based compensation for financial reporting purposes, but keep it as an expense in their tax returns. How absurd is this?

More absurd, odds are Christopher Cox will resume the campaign he waged in Congress to keep stock-based compensation in the tax return but out of the income statement. This is how the SEC "guarantees honesty" in the capital markets.

Albert J Meyer