I spoke with Mr. Parish on the phone recently, and while I'm not a CPA, I found much of what he said is plausible. What's particularly interesting is that none of the reporters who've written articles on Parish's report have included his web address. Nor have they included any of the graphics or statistics from his web site. No Accountability Parish claims that Microsoft is misreporting earnings by not properly accounting for the stock options it issues as compensation to its employees. Here's how it works.
Wages are a cost.
They show up on a balance sheet, affecting net income and, eventually, earnings and profitability. Knowing that showing consistent earnings growth is key to sustaining higher stock values, it becomes imperative for Microsoft to ensure that high wages do not show up on the balance sheet as a cost. When an employee exercises stock options, the options are valued at the current market price of the stock, less the exercise price of the option. The difference between the two is the gain realized. The employee must then report this gain as income and pay tax on it, even if the stock is not sold.