(FORTUNE Magazine) – It is the other great political smackdown of fall 2004. An anxious nation (or at least its CFOs, accountants, money managers, corporate-governance gadflies, and tech-company workers) awaits the outcome: Will the Financial Accounting Standards Board finally triumph in its quest to force companies to expense the options they give employees? Or will a feverish Silicon Valley lobbying effort on Capitol Hill force the accountants to back down?

A few months ago the answer seemed clear. Since the corporate scandals of 2001 and 2002, FASB's once-lonely stand in favor of expensing options has gained support from accounting firms, investors, and the 753 publicly traded corporations (according to the latest tally by Bear Stearns) that now voluntarily expense options. It looked as if mandatory expensing was only a matter of time--Dec. 15 was and is the deadline proposed by FASB.

Then, in a stunning 312--111 July vote, the House of Representatives changed all that. The bill the House passed--with no hint of its usual partisan rancor--wouldn't entirely ban options expensing but would seriously mess with FASB's plans. In the Senate, there's no chance the bill will get out of the Banking Committee, where chairman Richard Shelby and ranking Democrat Paul Sarbanes are FASB allies. But lobbyists' hope springs eternal when House and Senate conferees get down to negotiating the budget, into which all sorts of unrelated nonsense can be shoehorned.

The budget talks will happen this fall, possibly after the election. Happily the odds favor inaction whenever the Senate is involved. But the anti-expensing team does now have the momentum. It's always had the money: Employees of big options-granters Intel, Cisco, and Siebel Systems have given heavily to House and Senate members who support their crusade.

The prospect of Congress setting accounting standards is a disturbing one, and the compromises built into the House bill to garner votes render it a particularly messy effort. "To anybody who cares about the consistency and integrity of financial reporting," says FASB chairman Robert Herz, "that [bill] doesn't fit in that world." Still, there is no constitutionally mandated separation of accounting and state, so you can't fault the techies for doing what they can to get their way. You can fault them, however, for being wrong.

The core argument of those who oppose options expensing is that it will take away a motivational tool that has made thousands of regular working folks rich. But companies have had to disclose options costs annually since 1996 and quarterly since last year. Those who argue against moving that information from a footnote to the expense statement are in effect arguing that investors are too stupid to look at footnotes. And while investors certainly can be stupid, the evidence so far is that the market already factors in options costs.

It is possible that CEOs and boards aren't so good at reading footnotes and will change their options-granting ways once they are forced to expense. If FASB's estimates of options costs are too high, then expensing options could cause companies to give out too few of them. That is the second argument of the Silicon Valley crowd, and it has more merit than the first. In the early 1990s, FASB decided that the way to expense employee options was to estimate their value when they're granted using the Black-Scholes or binomial options-pricing model. But those models were designed for tradable, short-term options--not the ten-year, nontransferable kind that companies give their employees.

FASB's proposed options rule allows many tweaks to reflect the different nature of employee options, but lots of CFOs and some finance scholars--notably the University of California at Berkeley's Mark Rubinstein, co-creator of the binomial pricing model--have never been comfortable with the numbers thus churned out. This spring two Stanford economists proposed a new approach: Treat the options as a series of 90-day contracts, which are easy to value. Rubinstein and Nobel laureates Robert Merton and Myron Scholes endorsed that approach, but on Aug. 4, FASB voted not to pursue it, arguing that ten-year employee options do not in fact resemble 90-day contracts. Agree with it or not, it was the kind of decision that one shudders to think of Congress trying to make. --Justin Fox