The valuation implications of employee stock option accounting for profitable computer software firms.

Accounting Review,  October, 2002  by Timothy B. Bell

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I. INTRODUCTION

Employee stock options (ESOs) comprise a sizable portion of executive compensation (Hall 2000, 121; Business Week 2002), but financial statement preparers, financial statement users, regulators, and standards setters disagree on how ESOs should be reflected in the financial statements. In June 1993, the Financial Accounting Standards Board (FASB) released Exposure Draft: Accounting for Stock-Based Compensation (FASB 1993) (hereafter Exposure Draft). The Exposure Draft would have required employers to recognize as an intangible asset the fair value of stock options at the grant date, to amortize this asset, and to record the asset's amortization as employee compensation expense. ...