Financial Accounting Blog

Thursday, June 17, 2004

Stock Options. The chairman of the Cato Institute explains why he thinks FASB is wrong about expensing the cost of stock options. This is in response to FASB's recent exposure draft of a new accounting rule that would require that all forms of share-based compensation be accounted as a cost in the period they are granted. The author argues that:
A stock option in not like "other forms of compensation." Stock option are incentive for future performance; they are not, like a bonus, a reward for prior performance.
Stock options and other forms of equity-based compensation dilute the outstanding shares only when they are exercised, not when they are granted. And the accounted value of these forms of compensation should be based on their market value when exercised, not on some non-objective formula when granted.