GST, you are living in a dream world if you think that any one GAAP net income number and rules for arriving at it can be made to depict the economic earnings of any company, especially if the rulemaking is politicized. Your "solution" will not create clarity for investors - only a willingness to actually read and understand the financial statements, including the notes, can do that. You can improve disclosures so that nothing is hidden from view, but investors will always have to do a little work to find what is meaningful - and even then, everyone will come up with a different answer. "Fixing" option accounting, if in fact your solution is a real fix, is no magic bullet. I'd much rather that the people making the rules focus on corporate governance issues and securities industry regulations so that boards, audit committees, auditors, investment bankers and analysts do their jobs without conflicts of interest or incentive and opportunity to defraud investors. Option accounting is a trivial issue by comparison and the big companies making such a big deal about expensing them are doing so for no other reason than PR.
BTW, in your house option example, I've granted you an option on one house, not the housing market, so the market's volatility is not important - only that of my house and unless I sell it, you can only guess at its value. Also, if the option can't be sold, the only "volatility" that matters is that implied by the dispersion of possible future values. If you arbitrarily decide that this range has shifted upward or widened and, as a result, the option is worth more than you originally valued it at, have I incurred a new, additional cost? Would you make employers revalue options and the expense upward if the stock rises or becomes more volatile while the employee is still working to earn it? |
