Corp I don't agree at all with your position, sorry. You said:
"The problem I have with expensing ISO is that it tries to convert a BS transaction into a P&L transaction just because ISO has value to the employee as compensation. I say keep the BS and P&L items separate. Capital stock is a BS item, period. It is OK to say to an employee, we’re paying you cash out of one packet (our P&L) plus stock out of our other pocket (the Balance Sheet)."
Cash is also a balance sheet item that converts to a P&L item when handed out, simple as that. Would you agree that if you had inventory, a balance sheet item, that you gave out in exchange for some services or goods, that that should be considered an expense? If so, it is no different than handing out equity in exchange for services. The services rendered are an expense, period. These expenses should be reflected as such in the income statement. It really is quite simple.
Like I said if you raised capital by selling stock, options, warrants or any other form of equity, the transaction would be purely a balance sheet transaction. When you then take the cash and pay employees you are converting the balance sheet item, cash, to a P&L item. Since the option has value at the date of the grant, this should be measured and reflected as an expense on the income statement.
The main reason why I support this change is because until it hits the P&L, management will continue to ignore the true cost of the issue. Issuing options to the employees is no different than selling the options then turning around and giving the employees the cash. Either way you are giving up equity in return for services. You are giving up a balance sheet item to pay for an expense.
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