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David is an occasional blogger, software engineer, Nintendo fanboy, liberal, news magazine addict, voracious TiVo user, and bibliophile. He was born in St. Louis, grew up in southern Indiana, and returned to St. Louis to attend Washington University. He hasn't managed to escape yet. He's a fan of free wine tastings, too many tv shows to name, and eating out. David makes his living developing web applications used internally by his employer. He doesn't blog about work because he's heard too many stories about that causing workplace troubles. There's more on the about page. |
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18 December 2004 - 8:48 am
So the FASB has created new rules that requires companies to count stock options as expenses. I really don't see what the big deal is. This is only an "on paper" change: actual profits don't go down because of this, just the reporting of profits.
Accounting rules in general leave me more than a bit confused. In the hypothetical world calculating profits should be easy. Here's how much I spent and here's how much I took in. The difference is my profit or loss. But then you add in depreciation for physical assets and deferred payments for things and you are quickly left with a system of accounting where published results don't tell me much about your business beside the fact that you have a good accountant.
So, coming back to counting options as an expense, I'm very much in favor of counting an expense at the time it was incurred. If I give out millions of dollars in stock options this quarter, I think my balance sheet for this quarter should reflect that. The article linked above says that "more than $3 billion in combined profits would have vanished at Cisco Systems, Intel and Sun Microsystems if the new rules had applied in their most recent fiscal years." If I'm an investor in those companies, I want to know that they didn't actually make the money that they're reporting to have made.
Anyone out there want to speak up for not counting options as an expense?
Posted by on 18 December 2004 at 8:48 AM
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