Should We Change How Stock Options Are Counted?

Earnings, IPOs, and the like

from the questions,-questions dept

Here are a couple of articles debating whether new legislation should pass that would require stock options to be reported on financial statements. The government is hoping that doing so will help to avoid Enron like scandals, but the tech industry is yelling that it will destroy the usefulness of one of Silicon Valley’s driving fuels. It does seem clear that it would hurt official earnings reports (suddenly another, somewhat large, expense will be added to many income statements). However, many firms do use it to offset taxes – so they are using it to their advantage as an expense, but not when it looks bad. It wouldn’t actually change how well a business is doing – just how well it appears to be doing, making the numbers more realistic. I am generally for any accounting rule that makes financial statements more accurate in the long run. The “incentive” of stock options should be that it gives an ownership stake to employees – and not that it’s a great tax dodge for the company.