Accounting for Stock Options Bus 650

Accounting for Stock Options

John C. Rogers

BUS 650 Managerial Finance

Wendy Achilles

August 6, 2012

Accounting for Stock Options

“Accounting for stock options has been one of the most controversial topics in accounting during the last decade. The principal debate is whether compensation expense should be recognized for stock options and, if so, the periods over which it should be allocated” (Apostolou & Crumbley, 2004, p. 30). The two methods used to calculate the expense regarding stock options are the "intrinsic value" method and the "fair-value" method. Only the fair-value method is currently as part of generally accepted accounting principles. Businesses act to gain profit. It is part of their charter. Business decision makers act to increase profits and sustain their enterprise. How they account for granted stock options is determined by how it will best serve the business. In the big picture, businesses use stock options in a variety of ways to serve the business. Stock options can attract high profile executives as well as creating loyalty from employees. One a benefit just for executive, companies are distributing stock options to their employees more than ever before as the company understands the value of a connected employee.

Organizations in today’s age are expected to uphold certain regulations and laws protecting their employee’s well-being and future experience. It is true however that not every organization is able to offer certain benefits to their employees. While some companies have the ability to provide a comprehensive medical/vision/dental plan for employees, or the capacity to offer extra benefits for their families and loved ones, a vast number organizations are now offering a comprehensive stock option plan for any level employee at a rate that was not seen in years past. As more and more companies offer stock options, it is natural to be aware of the fact that there are inconsistencies arising as a whole with...