Many analysts and big investors keep a close eye on operating cash flow to make sure earnings are really moving in the right direction, because this is the cash flow that best reflects a company's day-to-day business. Say a company with positive earnings has negative operating cash flow. It happens -- and when it does, it is often a signal of a disturbing development, such as overly aggressive accounting.

David Zion, an accounting analyst at Credit Suisse First Boston Corp., calculates that if the proposed new treatment had been applied over the past five years, it would have wiped $100 billion off the operating cash flows of the companies in the Standard & Poor's 500-stock index, with technology companies -- which tend to fork out the most options -- taking the biggest whack.

Take JDS Uniphase Corp., a maker of fiber-optic products. Applying this rule to JDS's books between 1999 and 2003 would have reduced the company's operating cash flows by about $1.5 billion, Mr. Zion estimates. That is almost six times the $267 million in operating cash flows JDS booked for that period.

"We have always separated out" tax savings from option exercises when assessing companies' cash-generating ability, says Christopher Bonavico, who manages a $1 billion portfolio with San Francisco-based Transamerica Investment Management. "When you look at some companies, smaller companies in particular, as much as 60% of their operating cash flows may come from option-related tax benefits, not from their underlying businesses."

C. Terry Grant, an accounting professor at California State University at San Marcos, says booking tax benefits as cash flow from operations is "quite misleading." He says operating cash flows are generated by selling goods and services and should be "repeatable" from year to year.

As has happened with other proposed rule changes for options accounting, companies are complaining, calling the new bookkeeping methods too complex.