[Steven W.]

Not always...the smart strategy is to exercise as close to the grant price as possible to minimize recognizeable gains. It also depends on vesting and whether the Co's stock price has risen. Options are also used in lieu of financial compensation, so the salary or performance bonuses an employee waived benefits the company but as this was a hiring negotiation point, it won't have an accounting journal entry.

Good points except you missed one - stock options are already accounted for in the most important way - by diluting the share count. If stupid investors would just merely start focusing on net income per diluted share as the bottom line they wouldn't find such simplicities to seem so complicated.

[Doctor Stochastic]

One could use the income per undiluted share and income per diluted share as bounds on income per share. Then one could model the probability of option conversion as a function of the share price and an estimate of the expected income per share. This could be extrapolated as I noted in a previous post.

It doesn't matter so much what method (within reason) is used as long as the methods are standardized among companies.