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Strategies & Market Trends : Employee Stock Options - NQSOs & ISOs -- Ignore unavailable to you. Want to Upgrade?

To: LLCF who wrote (222)	8/19/2002 1:23:18 AM
From: hueyone	Read Replies (2) \| Respond to of 786

In my opinion... from what you are saying the accounting board doesn't understand the situation... which I don't think is surprising given the topic. I suspect the FASB may understand the situation more than you give them credit for. They recommended expensing expensing stock options on the income statements back in 1994, but Senator Lieberman threatened to get them shut down and they backed off. Judging by recent statements from board members, I suspect the predominate opinion is still that stock options should be expensed on the income statement, but I don't think they want to make that recommendation again until such time it can be pushed through without backfiring on them. As far as the best way to expense the options, some of us were kicking around the idea awhile back for a combination of Black Scholes estimates followed by a truing up to actual value at time of exercise. G Barr had some criticisms of this method, which I need to review. Regardless, whatever method is suggested, people find flaws and problems with it. Practically any method is better than none, though. I believe that FASB has looked at a lot of methods and back in 1994 ended up with two alternatives for expensing in the footnotes, the intrinsic value method and fair value method---(although I have never actually read SFAS 123). The intrinsic value method, at least as described in the Business Week article below, appears to deal with Exacctnt's concerns. To achieve much the same result of expensing at the time of exercising, some recommend a method known as intrinsic value. A company expenses the difference between the exercise price and the stock price throughout the vesting life of the option, repeatedly updating it as the stock moves. As the stock price rises, options become more valuable, and that additional value is charged to earnings. If the stock declines, options decrease in value, and the charge to earnings evaporates. businessweek.com Best, Huey