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There's No Hiding It

All the cool companies are expensing their options. Can your business survive without that extra earnings padding?

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This story appears in the November 2002 issue of Entrepreneur. Subscribe »

When The Coca-Cola Company first volunteered to treat options as an expense in its financials as a service to shareholders, the response from the business community was lukewarm, even skeptical. Other corporate behemoths, unexcited by the idea of leveling earnings with a big compensation charge, were not prepared to jump on the bandwagon. But in recent months, the trickle of companies following in Coke's footsteps has become more of a stampede, as businesses race to prove to investors that they, too, are dedicated to giving investors the whole truth. Now, with the practice not yet law, but quickly becoming the fashion of the day, small public-company CEOs have to figure out whether to follow suit.

The debate has come a long way since 1994, when similar proposals by the Financial Accounting Standards Board (FASB) were quickly quashed. But while the FASB has recently stated it will not revisit the idea of requiring companies to expense options (until the International Accounting Standards Board does so), it did decide to propose requiring that companies disclose the value of options in the footnotes of quarterly financial statements, rather than in their annual reports.

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