The concerns of supporters of unrecognition are, if they start to recognize the expense of the stock options in the profit and loss statement the net income and earnings per share will reduce drastically. Because the basic rule is that higher costs will lead to lower earnings and therefore lead to lower prices in the stock. In turn, it will hinder the potential to attract new investors and it will make the existing shareholders displeased. Also, it helps companies conserve their cash because employees can substitute it for cash bonuses. On the other hand, the critics point of view is stock options should always be considered an expense because they are a real cost of doing business. Also, excessive use of the stock option plan will dilute the value of the other shareholders" stocks in the company. As stated from The Amazing Stock Option Bubble. (1999).
"To quote Warren Buffett, "If options aren't a form of compensation, what are they? If compensation isn't an expense, what is it? And, if expenses shouldn't go into the calculation of earnings, where in the world should they go?".
In 1993, the Financial Accounting Standards Board's (FASB) recommended a new policy put in place to combat the excessive use of this strategy by companies. This made headline news for the executives in large corporations and caused a major rally in Silicon Valley called "the Rally in the Valley". Consequently, after the objection and the protest, which attracted media attention, the FASB quietly decided not to pursue the issue any further. But in 1995, a new policy was issued called the Statement of Financial Accounting Standard No. 123, " Accounting for Stock-Based Compensation" (SFAS 123). This new policy states that if the company does not voluntarily record stock options to employees as an expense, the company must require placing a footnote at the end of the financial statement. Most large U.
