The measure of diluted earnings per share currently reported by corporations partially reflects the number of shares that employees could obtain with vested but, as yet, unexercised options. Some have maintained that this is all that is required to capture the effects of option grants. Clearly, this adjustment corrects only the denominator of the earnings per share ratio.
It is the estimation of the numerator that the accounting dispute is all about. Some have argued against option expensing on the grounds that the Black-Scholes formula, the 2 prevailing means of estimating option expense, is approximate. It is. But, as I indicated earlier, so is a good deal of all other earnings estimation.