[{"data":1,"prerenderedAt":-1},["ShallowReactive",2],{"detail-sidebar-cat-0-en-105":3,"doc-seo-321722-105":59,"doc-detail-321722-en":130},{"code":4,"msg":5,"data":6},0,"success",[7,13,18,23,28,33,38,43,48,51,55],{"id":8,"doc_module":4,"doc_module_name":9,"category_name":10,"show_sort_weight":11,"slug":12},1,"Document","Story & Novel",90,"story-novel",{"id":14,"doc_module":4,"doc_module_name":9,"category_name":15,"show_sort_weight":16,"slug":17},2,"Literature",80,"literature",{"id":19,"doc_module":4,"doc_module_name":9,"category_name":20,"show_sort_weight":21,"slug":22},4,"Exam",70,"exam",{"id":24,"doc_module":4,"doc_module_name":9,"category_name":25,"show_sort_weight":26,"slug":27},5,"Comic",60,"comic",{"id":29,"doc_module":4,"doc_module_name":9,"category_name":30,"show_sort_weight":31,"slug":32},6,"Technology",50,"technology",{"id":34,"doc_module":4,"doc_module_name":9,"category_name":35,"show_sort_weight":36,"slug":37},7,"Healthcare",40,"healthcare",{"id":39,"doc_module":4,"doc_module_name":9,"category_name":40,"show_sort_weight":41,"slug":42},8,"Research & Report",30,"research-report",{"id":44,"doc_module":4,"doc_module_name":9,"category_name":45,"show_sort_weight":46,"slug":47},9,"Religion & Spirituality",20,"religion-spirituality",{"id":46,"doc_module":4,"doc_module_name":9,"category_name":49,"show_sort_weight":46,"slug":50},"World Cup","world-cup",{"id":52,"doc_module":4,"doc_module_name":9,"category_name":53,"show_sort_weight":52,"slug":54},10,"Lifestyle","lifestyle",{"id":56,"doc_module":4,"doc_module_name":9,"category_name":57,"show_sort_weight":24,"slug":58},19,"General","general",{"code":4,"msg":60,"data":61},"ok",{"site_id":62,"language":63,"slug":64,"title":65,"keywords":66,"description":67,"schema_data":68,"social_meta":123,"head_meta":125,"extra_data":127,"updated_unix":129},105,"en","expensing-stock-options-current-situation","Expensing Stock Options - Current Situation","","Explains the accounting treatment of employee stock options and the ongoing controversy over whether they should be expensed. Describes how APB 25 (1972) used “intrinsic value” and often produced no expense, while SFAS 123 (1995) recommended expensing using “fair value” through option-pricing models, with pro forma disclosure if intrinsic value was used. Analyzes arguments for expensing based on economic compensation costs and comparability, versus concerns about dilution effects and whether adjustments to EPS fully reflect option obligations.",{"@graph":69,"@context":122},[70,84,105],{"@type":71,"itemListElement":72},"BreadcrumbList",[73,77,79,82],{"item":74,"name":75,"@type":76,"position":8},"https://docshare.wps.com","Home","ListItem",{"item":78,"name":9,"@type":76,"position":14},"https://docshare.wps.com/document/",{"item":80,"name":40,"@type":76,"position":81},"https://docshare.wps.com/document/research-report/",3,{"item":83,"name":65,"@type":76,"position":19},"https://docshare.wps.com/document/expensing-stock-options-current-situation/321722/",{"url":83,"name":65,"@type":85,"image":86,"author":91,"headline":65,"publisher":94,"fileFormat":97,"inLanguage":63,"description":67,"dateModified":98,"datePublished":99,"encodingFormat":97,"isAccessibleForFree":100,"interactionStatistic":101},"DigitalDocument",{"url":87,"@type":88,"width":89,"height":90},"https://docshare.wps.com/thumbnails/expensing-stock-options-current-situation/321722.png","ImageObject",300,407,{"name":92,"@type":93},"Eliana","Person",{"url":74,"name":95,"@type":96},"DocShare","Organization","application/pdf","2026-11-01","2026-09-21",true,{"@type":102,"interactionType":103,"userInteractionCount":44},"InteractionCounter",{"@type":104},"ViewAction",{"@type":106,"mainEntity":107},"FAQPage",[108,114,118],{"name":109,"@type":110,"acceptedAnswer":111},"What accounting standard in 1972 governed stock option expense, and how did it work?","Question",{"text":112,"@type":113},"APB 25 required an expense measured by “intrinsic value,” defined as the difference between the stock’s current price and the strike price. If the stock price was at or above the strike price, the intrinsic value—and thus the expense—could be zero.","Answer",{"name":115,"@type":110,"acceptedAnswer":116},"What change did SFAS 123 recommend in 1995?",{"text":117,"@type":113},"SFAS 123 recommended expensing stock options using “fair value” calculated with an option-pricing model. It also allowed firms to continue using APB 25 if they chose, but required pro forma net income and footnote reporting when intrinsic value was used.",{"name":119,"@type":110,"acceptedAnswer":120},"What is the core argument for expensing stock options?",{"text":121,"@type":113},"Supporters argue net income should reflect economically significant compensation costs, since options have value and represent an expense to the firm. Expensing would also improve comparability of earnings across firms that compensate using options versus cash.","https://schema.org",{"og:url":83,"og:type":124,"og:title":65,"og:site_name":95,"og:description":67},"article",{"robots":126,"canonical":83},"index,follow",{"doc_id":128,"site_id":62},321722,1790786551,{"code":4,"msg":5,"data":131},{"doc_id":128,"user_id":132,"nickname":92,"user_avatar":133,"doc_module":4,"category_id":39,"category_name":40,"doc_title":65,"doc_description":67,"doc_content":134,"file_id":135,"file_url":136,"file_type":137,"file_size":138,"view_count":44,"is_deleted":4,"is_public":8,"is_downloadable":8,"audit_status":8,"page_count":24,"language":139,"language_code":63,"site_id":62,"html_lang":63,"table_of_contents":140,"faqs":141,"seo_title":142,"seo_description":67,"update_tm":143,"read_time":144,"preview_page_count":4},4398048949847,"https://ap-avatar.wpscdn.com/avatar/400002536579ef2da7f?_k=1778318612642679267","# Expensing Stock Options\n\nby Joseph G.Haubrich  \nMany compnis gie stock optionsto their employees as a form of compen-sation.This gives the employees theright to buy company stock at a givenprice(the “strike price”),though oftenemployees cannot exercise the optionuntil a year or more has passed.If thefirm's stock goes up,the employee canget the stock and make a tidy profit.Firms often find options a good way tocompensate employees:Along withrestricted stock grants,options can givethe employee a stake in the firm's suc-cess and serve both as motivation andreward.Furthermore,they are a way topay employees without handing overcash,which many start-up firms need topay outside suppliers  \nThe popularity of options has engenderedasurprisingly intense controversy abouthow these options should be accountedfor,and what effect they should have onthe firm's reported earnings.Some pcopleargue that the option should count as acompensation expense to the firm(whichin turn reduces the firm's reported earn-ings).others that it shouldn't.Each sidehas its share of prominent politicians,business leaders,and Harvard professors(Alan Greenspan,Warren Buffet,andRobert Merton for expensing.George W.Bush,Andrew Grove,and WilliamSahlman,against).The numbers involvedare large enough to be striking:In 2001,AOL Time Warner(now known as TimeWarner)reported an operating incomeofS700million,but expensing stockoptions would have resulted in a loss of  \nS1.7 billion.The difference is mostnotable in so-called new economy firms;expensing stock options would doublethe number of firms in the computer,software,Internet,telecommunications,and networking industries with negativepretax earnings in 1999(from 23 percentto 45 percent).  \nThis debate does not reflect a suddentaste for arcane accounting amongAmerica's leaders.Rather,it reflects dis-agreement over whether the proposedchanges will make reported earningsmore or less informative to investors.Sowhile understanding the issues requiressome accounting.the real questionsconcem economics.  \n## ■ The Current Situation\n\nIn 1972,the Accounting Principles Board(the organization authorized to establishaccounting standards)issued APB 25.astandard that required companies to treatoptions as an expense measured by the\"intrinsic value\"of the options,that is,thediflerence between the current price ofthe stock and the strike price.Thus.ifacompany with stock price ofS10 issuedoptions with a strike price of S10 orhigher,there would be no expense.Thiswas,in fact.the practice followed by mostfirms,so the options had no impact oneamings whatsoever.  \nIn 1995,the Financial Accounting Stan-dards Board (the successor to theAccounting Principles Board)issuedSFAS 123.This standard recommendedthat firms expense options using a \"fairvalue\"calculated using an option-pric-ing model,although it allowed firms tocontinue to use APB25 if they wished.(Option-pricing models did not exist in1972.)If a firm uses the “intrinsic value”approach,however,it must calculate a\"pro forma net income.\"that is,netincome using the fair value approach,and report this in the footnotes.Mostfirms continued using APB 25.  \nThe curent controversy revolves aroundwhether or not firms should be requiredto use the fair value method,whicheffiectively would force them to countemployee stock options as an expense,reducing net income.  \nMany market commentators arguethat companies should expense thestock options they give their employeesWill expensing give investors betterinformation about what companiesearn and spend?  \n■ The Accounting DebateThe popular case for expensing stockoptions is largely a reaction to revela-ions of corporate fraud and wrongdoingover the past several years.It seemedthat executives could grant themselveshuge options in lieu of other compensa-tion,which,because they were notreported asan expense,made the firn'seamings look good.Good earningsincreased the stock price,after which theexecutives could exercise the option atgreat profit—in the venacular,\"","cbCaic64MG31a1ZF","https://ap.wps.com/l/cbCaic64MG31a1ZF","pdf",1372727,"English","# Expensing Stock Options\n## The Current Situation\n## The Accounting Debate","[{\"question\":\"What accounting standard in 1972 governed stock option expense, and how did it work?\",\"answer\":\"APB 25 required an expense measured by “intrinsic value,” defined as the difference between the stock’s current price and the strike price. If the stock price was at or above the strike price, the intrinsic value—and thus the expense—could be zero.\"},{\"question\":\"What change did SFAS 123 recommend in 1995?\",\"answer\":\"SFAS 123 recommended expensing stock options using “fair value” calculated with an option-pricing model. It also allowed firms to continue using APB 25 if they chose, but required pro forma net income and footnote reporting when intrinsic value was used.\"},{\"question\":\"What is the core argument for expensing stock options?\",\"answer\":\"Supporters argue net income should reflect economically significant compensation costs, since options have value and represent an expense to the firm. Expensing would also improve comparability of earnings across firms that compensate using options versus cash.\"}]","Expensing Stock Options - Current Situation | PDF",1789960076,13]