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Pastimes : Austrian Economics, a lens on everyday reality

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To: Don Lloyd who wrote (52)	12/12/2001 4:04:16 AM
From: LLCF	Read Replies (1) of 445

<If accounting is supposed to audit the company, and not the shareholders, then the fact that the company is worth $98M with cash compensation and $100M with option compensation seems to me to be strong evidence that it is not reasonable to make a $2M compensation expense entry on the income statement in both cases.> That depends on what you're trying to accomplish with accounting... the value of the company [a feat given up on using accounting circa 1930's] or the companies earnings [given up on circa 1960's]. :) It's even stickier of course because this value 'paid' to the employee is decaying away and may or may not be worth anything. IMO they are simply trying to save what little value IS left in accounting statements... ie. the operating statements... your own words point out the dilema: <<To the best of my knowledge, no one who has agitated for the expensing of employee stock options has ever given the slightest indication that they would be satisfied with treating the expense as the dilution that it actually is>> "treating the expense as the dilution that is actually is" Right, it's both of course... an expense that is also a dilution. How would a purchase of raw materials with stock be accounted for? Since everyone agrees it is a value traded for talent or basically compensation... why wouldn't it be an expense? IMO Buffet is saying this because this is how HE is looking at it: "look, this is their real earnings because they aren't accounting for these expenses. Simple as that... he's telling you what he is doing with the statements to make them correct in his eyes... to arrive at "earnings for company XYZ according to Warren". Of course we all know he's god. :) DAK

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