Double counting. Interesting assertion, but I believe Mucho’s take on the issue is correct. The dilution effect and the cost value of the option are two different items. If two different shareholders were each granted the option to purchase one single share of Q, but one shareholder was granted the right to purchase Q at $25 per share and the second shareholder was granted the right to purchase to purchase Q at $32 per share, the estimated option expense would be different for each case, even while the impact from dilution of adding one more share would be identical in each case. So stock option expense must be calculated separately from dilution effect. By the way, I have never once seen this argument (double counting) asserted in any of the numerous articles I have read regarding expensing stock options, many of which have contained arguments from both sides.
Reconciling cash flows. As has been stated, reconciling cash flows with reported net income goes on all the time and should not be a problem.
But as a member of society I think this is taking steps away from transparency and thus is bad for capitalism and society.
The Financial Accounting Standards Board, the International Accounting Standards Board, the Council of Institutional Investors, Warren Buffet, Alan Greenspan, Paul Volcker, Standard and Poors, 2001 Nobel prize winner Joseph Stiglitz as well as the accounting departments of many Wall Street firms all disagree with you. And I can't figure out where any of these folks stand to line their pocketbooks from taking this position.
The fight against expensing stock options is led by local Woodside favorite Larry Ellison. Larry’s profligate use of stock options to enrich himself to the tune of 706 million last year--- even as outside shareholders were losing their ass from a severe decline in Oracle share price, may someday be the stuff of business school legends.
The write-up by Stiglitz is not entirely accurate, since with SFAS 123 the FSAB did manage to make sure that Qualcomm et al do have to report Pro Forma results as if the stock options had been bought on the open market.
The write up by Nobel prize winner Stiglitz is entirely accurate. The FASB proposed that stock options be expensed in the income statement, but then caved in to Silicon Valley and their paid legislaturers by agreeing to give companies the option to footnote stock options expense once a year in the 10ks. Rule 123 is a greatly watered down version of what FASB originally proposed.
Best, Huey |
