S&P; to Change Criteria for Operating Profit

Standard & Poor’s, a unit of McGraw-Hill Cos., is expected to announce changes in the way it calculates companies’ operating earnings, the Wall Street Journal reported, citing S&P;’s chief economist David Blitzer.

S&P;’s move to stricter standards, expected to be announced Tuesday, underlines investors’ craving for reliable financial snapshots of publicly traded companies in the wake of accounting scandals at collapsed energy trader Enron Corp. The most controversial of S&P;’s new standards would treat employee stock options as a quarterly expense against earnings. The matter has drawn attention in Congress where Sens. Carl Levin (D-Mich.) and John McCain (R-Ariz.) have proposed legislation to require companies to show their stock options as an annual expense or risk losing certain tax breaks.

Generally accepted accounting principles set standards companies must use for reporting net income. But companies aren’t precluded from publicizing other earnings measures.

Including stock options as an expense will lower estimated earnings for S&P; 500 companies by an average of 10% this year, the paper reported, citing S&P; officials.