Slashdot Mirror
Employee Stock Options Must be Treated as Expenses
currivan writes "In a move that's been in consideration for a long time, the Financial Accounting Standards Board (FASB) approved new rules requiring employee stock options to be treated as expenses for reporting purposes. One of the reasons so many tech companies have given options to IT/engineering workers is that until now, they haven't counted against profits in quarterly reports. If markets were truly efficient, this wouldn't make a difference, but in reality, the tech industry is strongly opposed to the rule, though it should please Warren Buffett."
Accounting isn't about "real cash" and hasn't been for a while. What you say is literally true, but in accounting terms, there was a real change to your assets, assuming of course that the $10 and $6 were commitments and not just some Slashdot guy saying something for a demonstration (because then the assets are $0 and $0, and no change of any kind takes place) :-)
I've had to learn some accounting to implement accounting systems, and the disconnection from real money is on the one hand powerful; it gives a better view of the functioning of the business than the bottom line "how much did we make or lose?" But it is, as usual with power, correspondingly more dangerous, if you start believing the numbers are too real; the phrase "bottom line" has entered our vernacular for a reason.
In double-entry bookkeeping, you change in promise would cause a debit for us (and the corresponding credit for you), causing a drop in our assets of $4. Our cash wouldn't budge an inch, but the accounting changes.
It's worth looking into (google "double-entry bookkeeping"); I find it similar in some ways to physics, in the way that it is sort of based on a "conservation of assets & liabilities" law. Treated properly it will improve your understanding of money. Misunderstood and it will make it worse.