Financial Accounting Standards Boards
The Accounting for Stock Options
A company that owns its own shares should not recognize them as corporate asset in its financial statements but as treasury stock (Keith, 2003). When a company offers stock options, it is not distributing its assets, nor building a corporate liability; it is compensating the issuer with treasury stock. Because there is no liability creation, those who oppose expensing argue that stock option grant does not meet the explanation as identified in statement of financial accounting concept no.5.Instead in this opinion the existing stockholders are redistributing ownership units, with the company being the medium through which the transactions are made.
Financial accounting standards boards (FASB) have argued the above approach in a contrary opinion: No individual or corporation would argue that if a given company issued shares to public, and gave the collected cash to an employer, then the cash would be expensed. Now if the same amounts of shares are instead given to an employee who the sell them for cash, then all parties are put into equal position, hence the value of the stock should be expensed (Dack &Timothy, 2004)
Consider the following case: suppose an entrepreneur began a new business, having 100% of stock. The owner of the business promises the director 20% of business stock provided the business income exceeds business expenses by Z amount. Upon the business income exceeding business expense by Z, would it be fair for the owner of the business declaring that no stock should be given to the manager because Z means ‘’Z plus reasonable value of stock”?. This is the same as saying that the cost of stock must be incorporated in the business expense;
'Revenue-Expense=Income +Stock’ is the same as`` Revenue-Expenses-Stock=Income’’(Keith, F. 2003)
Each one is entitled to bring out his/ her opinion about the logic of the above outcome, but important to say, the director would argue that the entity assumption was incorporated to differentiate the income determination from capital transactions. Bringing out the value of stock redistribution in this outlook will lead to misreporting of business performance. To demonstrate this lets consider a person who starts a business with $1,000 investment. The business then makes a profit of $2,000 and intrinsic value of $ 20,000 .It then pays the owner of the business a $2,000 divided.10% ownership equivalent to $2,000 is the used to reward employees. Financial Accounting Board Standard (FABS) would argue that the business has broken (profit-stock award) i.e. ($2,000-$2, 000), although the business owner had withdrawn more that what was invested. (Evans Mark, 2009).
Stock options are a way of compensation to employees, though people seem to differ in their opinions regarding whether this compensation comes from entity or from an existing owner. In case where the stock option is not expensed, it does not mean they should be overlooked in financial reporting (Evans& Mark, 2009).Unfortunately, the current financial reporting has not looked deeply into this matter.
It is useful to recognize stock based compensation expense in financial reporting. This issue should not be criticized since companies will end up reporting lower income in their financial statements. It may not be likeable on what financial statements reports, but it is good when financial statements are presented faithfully to the fundamental economic transactions. As learnt from WorldCom and Enron credibility of financial statements is important to efficient operate in stock markets.
Once Financial Accounting Standard Board (FASB) proposal on stock option expensing is adopted it will help to strengthen investor confidence in the financial reporting for all companies, thus lowering the cost of capital. Proficient and efficient allotment of capital depends on the quality of accounting.
This paper has provided a deep and great learning opportunity on the accounting for stock options. This topic has brought out an important case study on the fundamentals of accounting concepts such as reliability and relevance that assist to in reporting financial statements. This issue also contribute to the importance of continuing learning of accounting principles and how the apply in real life situations.
- Gender Roles
- The Atlantic
- Vodafone United Kingdom
- Tate and Lyle PLC
- Strategic Management Internal Analysis
Big thanks to your writing team for coming through for me with my last order. I didn’t give them a lot of notice, but they were able to come up with a superb paper for me. This is the kind of service that I love. Sometimes, I get forgetful, and I forget when my paper due dates are. It is so comforting to know that I can be in a rush and contact Essays-Writer.net and that you will deliver a great paper for me, no matter what. The fact that you include an anti-plagiarism report is great, too. I appreciate knowing that my work is totally original. Essays-Writer.net rocks!
Your writers are masters at time management. I turned in an order for four very difficult papers, and they were all written perfectly, even with the short deadline notice. Thanks, Essays-Writer.net!
Your writing company delivers for me every time. I have never been disappointed.
I was happy with the two essays that your writers did for me. Even though the subject matter was quite dense, they managed to come up with high quality work. This has been my experience with Essays-Writer.net, over the long haul. Each and every time I have needed a high quality paper, you have come through with outstanding writing examples for me. I am pleased to recommend your writing service to my friends and colleagues.
The work I received from your writers was much better than expected, especially considering the affordability of your services! This is so impressive! I wasn’t aware, previously, that companies like Essays-Writer.net even existed, but then again, I’m pretty sure you are the only one that is this good. I have heard a lot of bad things about other writing companies, but never a negative word about Essays-Writer.net. You are reputed as being the best, and I, for one, am convinced that this is true.Thank you for the outstanding job you did on my essay and research papers.
Thank you for the great paper! My professor gave me a high mark for it.
As always, your writers have completed another impressive paper. This time, the subject matter required a lot of research. They not only completed the research. They also documented it absolutely perfectly. It would have taken me months to write a paper this thorough and of this high quality. Thank you so much for your diligence. It was greatly appreciated.
I find your writing service to be staffed with serious professionals who understand the urgency of turning out great writing for your customers. I have ordered papers from you for a year and a half now, and each time, I have been given superb papers that were error free and interesting to read. I truly appreciate your efforts, and hope to continue to do business with you from this point forward. You deserve my loyalty, because you are certainly loyal to your customers! Wishing you all the best.
Once again, I have sat down at my computer, because I feel I owe you big thanks. There is just no way to express how grateful I am for everything you did to make my research paper as good as it was. My professor gave me an A+ on it, which is the first A+ I have received during my entire college career.
Now I know where to go when I need an excellent paper written on a short notice. I am very happy with the paper your writers just produced for me. It was absolutely perfect. Please thank the ones who handled my order and let them know that I will definitely do business with Essays-Writer.net again.
Dear Writers #0019, Thank you for taking such a good care of me. I apologize for being as picky as I was, but I was only reflecting the professor’s requirements. I couldn’t believe my eyes when I got my grades back. He gave me an A+ on the paper, which is almost unheard. The paper you produced for me included each and every thing that the professor had required. He is notorious for giving us next-to-impossible tasks to perform in his class, but you managed to pull it off. I don’t know if any other student has received an A+ in this guy’s class, but he simply could not find a single thing wrong with my paper! Yay! Thanks so much.
My professor told me that the essay you wrote for me was the best one in the whole class! Thanks for doing such a good job. Compliments from this professor are rare!
Dear Essays-Writer.net, You handled my rush order beautifully. I am still amazed by the quality of the term paper, because your writers didn’t have a whole lot of time to write it. Still, they did a great job and I’m happy that I chose Essays-Writer.net. Thank you for taking care of this in such an eloquent way.
Dear Madam or Sir, Thank you for your competence and high standards. My paper was wonderful! I shall recommend your writing services highly. You are far and above better than other writing services that I have used. Your professionalism, attention to detail, high quality writing and great prices are a few of the reasons why I will never use any other writing service. Thanks again.
I am getting ready to graduate in another week, but had to take a minute to jot this line because I want you to know what a help your writing service has been to me, especially during my junior and senior years. The work has been hard, and I have had to study virtually all the time. With you helping me out with my more challenging writing projects, I have been able to move forward and do well on my tests and other school projects. I will be forever grateful to you for your help, and I wish you continued success with your fantastic writing service. All the best!