The task of accounting for equity compensation has never been more controversial and complex than it is today. There exists a viewpoint that one reason for current business scandals was the use of equity compensation arrangements. These arrangements gave companies the ability to issue executive stock options with no financial statement impact. In response to these issues, corporate practices are changing. Stock options are an important component of a company's executive compensation program. Stock options are a significant cost for corporations and an even larger benefit to executives. That is partly the reason why corporations fight to avoid making a charge for stock options against earnings. When a corporation gives something of value to its employees, in return for their services, it is clearly a compensation expense. Employee stock options are a legitimate expense and are considered the cost of doing business in today's economy. Using traditional accounting methodology, expenses are reported on the entity's income statement. Failure to account for stock options is a disservice to investors and a weakness of America's capital markets. Without consistent valuation rules, it is nearly impossible to compare one company's performance with another. This thesis will discuss the current reasons, methods, and effects of standardized expensing of stock options. This thesis (1) proves the role of the Financial Accounting Standards Board in passing accounting standards is being undermined by current investigations of the Securities and Exchange Commission through analysis of The Securities Exchange Acts of 1933 and 1934 and The Sarbanes-Oxley Act of 2002. (2) proves the necessity of accounting for stock options by examining Intel Corporation's financial statements and note disclosures regarding stock option expensing; (3) describes some of the valuation techniques used to value stock options and explains why these techniques are controversial; (4) predicts the impact of standardized expensing of stock options upon the economy, stockholders, and employees ; and (5) explores in detail the rationale and results of expensing stock options through presentation of comprehensive interpretation of Accounting Principles Board Opinions, Financial Accounting Standards Board Statements, and International Accounting Standards Board Exposure Draft. It is important that the public users of financial statements know the true significance of company performance indicators like earnings per share and net income. In addition, investors need to be aware of the reasons for and against an entity's expensing of stock options on the income statement in order to make informed business decisions. Most of the coverage on this topic via the media, periodicals, newspapers, books, and financial statements themselves are too technical to be used as an adequate source. The importance of this study is to organize, supplement and explain accounting for stock options in a logical manner. Hopefully, as a result, the stockholder, employee, and the business executive will be able to use this study as a source to determine the actual accounting and valuation techniques used, and their implications and ramifications.