Who Really Cooks The Books - Buffett blames Lieberman in 1994

New York Times | 7/24/02 | Warren Buffett

[The Big Econ]

Given that we expense stock options according to the prevailing premiums of comparable options in the open market, the result is still the opposite of what is intended -- a tax deduction on a non-cash expense and, therefore, greater future earnings.

Do you propose that such expenses be non-deductible?

[Dialup Llama]

The company could sell warrants (like an option) and place the proceeds in the treasury. Instead it is giving the right to buy shares to an employee as compensation. It is definitely a real expense and can be reduced to a cash equivalent.

[Benrand]

Yeah, but Harken and Halliburton.

[Dems_R_Losers]

Indeed, actions by Congress and the Securities and Exchange Commission have the potential of creating a smoke screen that will prevent real accounting reform. The Senate itself is the major reason corporations have been able to duck option expensing. On May 3, 1994, the Senate, led by Senator Joseph Lieberman, pushed the Financial Accounting Standards Board and Arthur Levitt, then chairman of the S.E.C., into backing down from mandating that options be expensed. Mr. Levitt has said that he regrets this retreat more than any other move he made during his tenure as chairman.

What???? You mean this happened before the Republicans took control of the Congress?? I thought Dickless Gephardt just told us it was all the fault of Newt Gingrich and the Contract With America!!! /sarcasm off/

[jackbill]

Very well stated.

Alan Reynolds had an interesting column in the Washington Times the other day entitled "Expensing: One for the books". It's at:

http://www.washtimes.com/commentary/20020721-68468784.htm

[jackbill]

It is definitely a real expense and can be reduced to a cash equivalent.

How?

Check out the link that I provided in #45.

[The Big Econ]

Even if the company sells warrants only to its executives, it still has zero expense, save for underwriting fees, and the company takes in cash proceeds.

So far, the expensing that I've seen/heard described is that of decree, not corporate cost. We can call an apple an orange to make everyone happy, but we will still really have two different fruits.

[SauronOfMordor]

The irony of "expensing stock options" is that it will enhance long-term earnings by giving corporations a tax deduction ("expense") without any related actual cash expense or asset outlfow whatsoever.

The assumption is that the expensing of stock options would qualify as an expense for taxing purposes

The purpose of expensing stock options is to give investors some idea as to how their share values may be diluted once options are exercised.

I would be in favor of just having another line item in the quarterly report, showing the net current value of exercisable options granted that quarter as an expense for that quarter. From quarter to quarter, as the stock price goes up and down, they would make a +/- adjustment to the figure.

[The Big Econ]

That is why companies issue stock options at or above market value -- to provide incentive to get the stock higher. Otherwise, there is an incentive to sell the stock short while being long the options, a riskless arbitrauge that erradicates opportunity cost by driving down the stock's price.

[TheOtherOne]

correct title:

Who Really Cooks the Books?

[Sam Cree]

"Without the "robust" economy, the impeached one would have been railroaded from office"

That's about right. A large part of the "robust" economy was the dot.com - tech bubble. Now that it's burst, the carnage is being aggravated by Clinton's tax increases as well as by corporate scandal.

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