US companies have been slicing hundreds of millions of dollars from their
expenses by making subjective changes to employee stock option valuations under
new accounting rules.
According to the FT US accounting experts have warned that new rules
forcing companies to deduct the cost of options from profits have been
undermined because of inefficient valuation methods.
The new rules were felt for the first time last week when several companies
reported Q1 earnings with the costs for options reflected. Companies, however,
have been free to massage the figures as they see fit because of imprecise
A lack of agreement on valuation methods and whether the costs actually
matter mean that the figures are unlikely to be challenged by auditors and
Former SEC chief accountant and now an analyst at Glass Lewis, Lynn Turner,
said the new standard would be ‘the latest version of the numbers game’.
‘It just gives the latitude to pick a number, any number,’ Turner was quoted
So far Intel has reduced stock option costs by $570m (£320m), while Cisco has
chopped the expense by $640m.
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