Stock Options From an Accounting Point of View Essay - 1

Stock Options From an Accounting Point of View - Essay Example For the reason that most stock options had exercise prices at least equal to current market prices, no compensation expenditure was recognized. This approach ignored any possibility that the stock price would exceed the exercise price in the future. In June 1993, FASB attempted to be familiar with the reality of stock-option value by issuing proposed SFAS 123, which required measuring the option value based upon the scores of issue that reflect its underlying value. As a result, total compensation expenditure was to be based upon the fair value of the options expected to vest on the grant date. No adjustments would be completed following the grant date in response to subsequent changes in the stock price. Fair value was to be estimated using Black-Scholes or binomial option-pricing models. An upsurge of substantial opposition to this fair value technique resulted, led primarily by industries making significant use of stock options, particularly in the high-technology sector. Smaller high-tech corporations were very verbal, arguing that offering stock options was the barely way they could hire top professional management. Furthermore, they claimed that the losses that would result from forcing them to recognize stock options as compensation expenditure would impair their stock price and put them at a disadvantage compared to larger corporations better able to absorb the expenditure of stock options (Apostolou, 2005). Opponents to the expensing of stock options embodied many members of Congress. In 1993, Senator Joseph Lieberman introduced a bill that would have mandated the SEC to necessitate that no compensation expenditure be reported on the income statement for stock-option plans. This bill would have set a treacherous precedent for interfering in the operations of FASB. The puissant interests aligned against it forced FASB to compromise. In 1995, FASB decided to hearten, rather than