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Who gains from this big push to expense options, and why are they bringing it up now? - Southack

"Everybody who is interested in having companies report their real earnings gains." - Duece

BWWWAAAAAHA ha ha!

The real expenses for stock options can only be precisely known AFTER the options have been exercised. That's how our system works today.

In contrast, if we change the accounting rules to make companies "expense" options prior to those options being exercised, then companies will have to GUESS at the final value of those options.

Call it what you will, but GUESSING at expenses is NOT the same as knowing the actual expenses.

In my opinion, GUESSING at the final value of options is a far WORSE system than what we have today.

This whole craze about "expensing options" is a push to make companies start placing guesses into their accounting books. That's a process that is ripe for corporate abuse.

I can't resist jumping in again......you still haven't replied to my earlier queries as to why it's OK for companies to GUESS at depreciation schedules, GUESS at residual values, GUESS at loan loss reserves, GUESS at renewal rates, yada yada, yada...GUESS has a negative connotation.....ESTIMATE is far better..or are you advocating that companies shouldn't do these things...

BTW...if I accept all your points about the problems with estimating the value of options grants, what's wrong with correcting the valuation each year....there are lots of ways it could be done...hire three investment firms who have NO investment banking relationship with the company, and take the average of the three..Also, to avoid the number being skewed up or down, because of a sudden swing in the stock price, do it on the first day of each month of the last quarter of the company's FY, and average those....wouldn't be perfect, but would be far better than what we have now....

On a related topic.....what do you think should happen when and if a company decides to reprice its options grants? ( Hint: I've tried to gently hoist you on your own petard.)

Regards...

The real expenses for stock options can only be precisely known AFTER the options have been exercised

Let's assume a company pays its CEO a salary of $10,000 cash, plus 1,000,000 ounces of gold to be paid in 5 years. What would you record as the CEO salary cost against current earnings? How about if they pay $10,000 plus the right to buy 1,000,000 ounces of gold at $300/oz.?

Let's consider two identical companies. Each company has revenue of $1 billion dollars with non salary expenses of $400 million. Company A pays salaries of $550 million. Company B pays salaries of $50 million, plus options to buy 100,000,000 million shares of stock at $10 per share. For simplicity, let's assume the current price is $10/share. As I understand it, you favor saying that Company A earned $50 million in this period; Company B earned $550 million or 10 times as much. If a valuation of the options (when granted) was $5, I'd say the two companies earned the same amount.

Now let's say, the next period is identical and the price of the stock of B(in the open market) is $20. Now those original options are exercised (Company B prints the certificates at a cost of $150 out of pocket). The value of the bought shares is $2 billion. The value of the exercised options is $1 billion. The company TAKES IN $1 billion in cash in the exercise process. Do you charge the $1 billion to the current period's earnings; do you restate the initial earnings? do you charge the cost of $150 to print the certificates?