NEW YORK - After years of heated bickering over whether to expense stock options, the debate within corporate America is shifting to an even thornier question: how to value them.

The question may sound like one that occupies the minds of gray-haired accountants with a penchant for arcane accounting intricacies. But corporate America has plenty at stake on the issue -- the effect of stock option expenses on earnings are directly related to how they are valued.

"The great debate used to be whether to expense options or not. Now the great debate going forward will be how to value options," said Standard & Poor's accounting analyst Robert Friedman. "How to expense options, how to standardize options -- it's all up in the air."

Doling out stock options, which give employees the right to buy a company's shares at a future date, became a popular way to attract talent cheaply during the tech boom of the 1990s. Accounting rules don't require companies to deduct stock option costs from profits, and they even receive a tax benefit in the process. As a result, several critics such as billionaire investor Warren Buffett have said not expensing options overstates profits enormously.

In recent weeks, several companies from General Electric Co. (GE.N) to Amazon.com Inc. (AMZN.O) have agreed to expense options in a bid to regain the confidence of investors tired of witnessing one accounting scandal after the other. Stock options weren't at the heart of the scandals, but many suggest they provided the incentive for executives to cook the books.

But already, several companies -- particularly technology companies that would be hit the hardest by expensing options -- have held up the valuation placard as the main reason they won't jump on the popular bandwagon. Many, like Cisco Systems Inc. (CSCO.O) point to the difficulty in putting a price on a stock options and how the derived value is largely subjective, depending on the assumptions and option pricing-model chosen.

"There are many different ways to value options. All we know is that none of them are right -- they are all guesses," John Kanas, CEO of North Fork Bancorp Inc. (NFB.N) told Reuters. North Fork is waiting for a regulatory agency to lay down some rules before it expenses options, Kanas said.

Several accounting and valuation experts, on the other hand, consider the argument a weak excuse. They say other items found on a company's profit statement such as goodwill and depreciation are harder to value. In any case, it's better to record a slightly inaccurate figure than the current practice of recording nothing at all, they say.

"These are just the howls of protest against having to recognize economic reality," said Bennett Stewart, a partner at Stern Stewart & Co., which provides valuation services.

VALUATION WOES

Nevertheless, hanging a price tag on stock options is a complicated issue. Adding to the confusion is that companies can choose from a number of methods such as the popular Black-Scholes model or the binomial model to value stock options, making it hard to compare earnings, analysts say.

For example, soft drink company Coca-Cola Co. (KO.N), which kicked off the trend toward expensing options last month, surprised veteran valuation experts by saying it would hand the task of valuing options to its investment bankers. But rival PepsiCo Inc. (PEP.N) uses the Black-Scholes model to arrive at the stock option expense it discloses in its footnotes.

"As long as everyone were treated the same, we could care less," said North Fork's Kanas.

In addition, each model itself relies on a number of subjective assumptions, such as stock price volatility, or their tendency to rise or fall in a time period. Volatility is particularly hard to predict and is often based on the past.

In fact, companies in the same sector use wildly different assumptions for expected volatility, further clouding the picture. Within the applications software sector, for example, Manhattan Associates Inc. assumes volatility of 122 percent, while Oracle Corp. assumes 57 percent volatility, according to a research report by Credit Suisse First Boston.

"The problem is that valuation is an imperfect science, it's not subject to a cookbook calculation," said Anthony Aaron, a partner at accounting firm Ernst & Young's valuation services group. "If it's garbage in, it'll be garbage out."

In particular, the Black-Scholes model, the most popular method of valuing options, has come under blistering attack from companies.

For starters, the model was never designed for employee stock options. It tends to overstate option costs because it assumes that options can be freely traded, although employee options cannot.

In addition, the model is meant for options that have a three- to nine-month timeframe even though most stock options vest over several years, said Aaron. Procter & Gamble Co. (PG.N), for example, last week said it would be prepared to expense stock options but complained that the Black-Scholes model wasn't applicable to longer-term employee stock options.

RELEGATED TO THE FOOTNOTES

Still, companies have been reporting stock option expense in their footnotes for years and so have already crossed the valuation bridge, valuation experts such as Alfred King, vice chairman of Valuation Research Corp. point out.

"They are difficult to value, but you can make a reasonable estimate," said Credit Suisse First Boston accounting analyst David Zion. "I think a reasonable estimate is better than what we have today, which is usually nothing."

Under current U.S. accounting rules, companies have the option of treating stock options as an expense or simply disclosing it in the footnotes of their annual report.

The issue is a tough one for corporate America because expensing stock options takes a hefty chunk out of profits, especially for technology companies that lavishly doled out options during the dot-com boom. Profits at S&P; 500 companies, for example, would have been 20 percent lower last year if they had expensed options, a recent Bear Stearns study showed.

Not surprisingly, U.S. corporations have bitterly fought efforts to make that mandatory. In the mid-1990s, they lobbied fiercely to beat back a proposal by U.S. accounting rulemakers that would have made stock option expensing mandatory.

Since then, companies have successfully kept stock option costs hidden away in the footnotes where they receive little attention. But accounting rulemakers are currently exploring the impact of requiring companies to report stock option expenses on their income statement.

One way or the other, the winds of stock option change seem to be headed corporate America's way.