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Part of that effort will include studying how to estimate the cost of options.
Will regulators finally force companies to report the cost of options as a real expense?
During the bull market, most investors and analysts were happy to ignore the cost of options.
Will accounting rules ever change to reflect the true cost of options?
Instead, they will have to charge the cost of options on their income statements.
Companies are happy to go along with this fiction, since it tends to hide the real cost of options compensation.
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According to Fortune magazine, if eBay had reported the cost of option grants from 1999 to 2003, its five-year net income would have been $13 million, not the $840 million it reported.
If a company doesn't already expense the cost of option grants, it must issue a pro-forma earnings figure in its annual report detailing what earnings would be if the cost of those stock option grants was expensed.
Patrick S. McGurn, director of corporate programs at Institutional Shareholder Services, said that if companies were forced to deduct the costs of options as an employee expense, the heads-I-win, tails-you-lose option grant given to Mr. Boneparth would not have happened.
These people argue against deducting the costs of options from companies' income because it would discourage the use of options and ordinary workers would be denied a source of wealth.
Now, companies take tax deductions when their workers exercise options, but if three senators have their way, those companies will be forced to compute the costs of options grants and deduct them from revenue.
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