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Joel on Software


by Joel Spolsky
Friday, December 17, 2004

Mercury News: “Accounting rule makers handed down long-awaited final guidelines Thursday that will force companies to deduct the value of billions of dollars of employee stock options from reported profits starting in mid-2005.”

Here's some old discussion of what this means.

The old Silicon Valley hands are unhappy with the general concept of expensing stock options, and one reason they often give for this is the difficulty of figuring out the value of stock options. But anybody in the investment industry, and indeed, anyone with a rudimentary understanding of financial accounting knows that accounting for the value of an illiquid asset is always a problem yet something you always have to do anyway, and just because the value of stock options changes over time or because it is not possible to fix exactly does not mean it shouldn't be accounted for consistently.

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