elmerp, RE: Like you, I am less that persuaded that the BS model is anything more than a rough estimate in the absence of a crystal ball.
Statements like that are indicative that you don't understand Black Scholes or the option expensing argument.
Black Scholes is not intended to be a predictive model. It doesn't tell you where an option will be when the employee exercises the option. That's why this whole discussion that you and Lizzie are putting forth is irrelevant.
Black Sholes is inteded to value the option when it is granted. That is the most relevant thing to accounting because we want to know how much the employee is being compensated when he/she does the work, not when the option is exercised. THAT is the trade off, granting an option versus paying the cash.
Advocation of things like the cash basis accounting, which you and Lizzie are implicitly doing, would set back financial statements decades, if not centuries.
Like TA, it's perfect at telling you what happened but lacking in telling you what will happen.
Nothing will tell you what will happen. Grant somebody stock, it is expensed at the value of the stock AT THAT TIME. If the employee chooses to sell the stock later at a higher or lower cost, it shouldn't, and doesn't, impact the company's financials. Same thing with options. The option should be expensed AT THAT TIME. If the option subsequently increases or decreases in value, it shouldn't affect the company. |
