Joel Spolsky nicely sums up my thoughts on the new Financial Accounting Standards Board rules on stock options:

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.

Stock options are a valid idea, but it's too easy to abuse them as a means of distorting their effects on a company's finances. If you grant stock options, you're giving away something of value, and that should be reflected on your balance sheet. Their value is hard to define, but hardly impossible to estimate — otherwise, how do firms decide how many options to grant?

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