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Debate the Theories of Accounting for Stock Options

The purpose of the paper is to describe an understanding and application of knowledge in ONE of the following fields.


Debate the Theories of Accounting for Stock Options

Must be able to identify the main issues in the chosen area. Must be enough content for graduate level finance, and must be in the 3rd person (APA).

Must include an introductory paragraph with a succinct thesis statement.
Must address the topic of the paper with critical thought.

If possible, provide a context of a first-person experience where you saw this academic concept in operation. Do not simulate third-party statements of experience.

Readdress the concept and the experience with critical thought. That is, what is your response to the content, either positive or negative, and then defend your position. If multiple options/alternatives/positions are present and are being rejected you must also defend the reasons for rejecting an option.

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Theories of Accounting for Stock Options


Stock option is a type of compensation provided to employees which allow them to buy stocks of the company their working for at a price at an agreed upon date or after fulfillment of a condition, say, attaining a specific level of revenues. Examples of stock options include unusual pattern of stock returns during the period surrounding stock option grant dates for CEOs and other top executives. Because this type of compensation results to no cash outflow for the company, its accounting has become controversial.

This topic became more controversial amidst the dotcom and the subprime meltdown. The Enron debacle pushed for the creation and the signing into law the Sarbanes-Oxley Act of 2002. Nevertheless, there are still gaps in the accounting treatment of this transaction that the Financial Accounting Standards Board, the International Accounting Standards Council and other concerned agencies need to address.

One of the issues needed to be addressed is the emerging practice of repricing stock options. In a stock-option repricing program, underwater stock options or options with exercise price higher than the price of the underlying stocks at the exercise date are exchanged for new ones with lower exercise price (Vogel, 2001, p. 409). Guides and standards ...

Solution Summary

The expert debates the theories of accounting for stock options are examined.