Expensing stock options: a recipe for more corporate disaster?

• Author: Murray, Donald
• Position: SpeakOut!; accounting

FASB's proposed regulation forcing companies to treat stock options as a business expense promises to thwart companies from overstating reported net income by attempting to measure the immeasurable. This will not provide shareholders better disclosure or solve the string of recent corporate failures.

FASB's flawed regulation measures income and expense items in a hypothetical manner with no basis in cash and transactions affecting the enterprise.

Fair and accurate accounting should be based on the actual measurement of an expenditure or receipt that is determined in cash.

One could argue that the cost of a stock option is reflected in the dilution that occurs to existing stockholders before the options are exercised, assuming the stock price goes up. The dilution is a mathematical calculation measured and shown on the income statement already. The actual cost will never be measurable in a cash expense to the company.

The proposed regulation will have a chilling effect on employee initiative, retention and morale because stock options become too expensive to grant. Why dampen the engine of growth that has propelled this country to technical and innovative leadership? Why disenfranchise thousand's of...