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Essay / Research Paper Abstract
This 7 page report discusses accounting for stock method plans and includes information on the primary concerns involved with the accounting side of administering such a plan. For a large number of companies in the United States, a portion of executive compensation is in the form of stock options. This can serve as incentive, as well as a potentially lucrative “bonus.” However, there are also a number of risks associated with the programs based on the viability and growth of the company stock. Bibliography lists 6 sources.
Page Count:
7 pages (~225 words per page)
File: D0_BWacct.rtf
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following specifically acceptable accounting standards and in the measurement of the often-convoluted transactions inherent in the globalized stock market. The greatest challenge is generally created by the measurement of the
multi-layered transactions and benefit provisions that do not readily lend themselves to the old standards of accounting. especially in terms of transparency and disclosure requirements.
As stock values fluctuate, determinations of value as related to compensation become even more complicated. What is less apparent is that as stock values fluctuate the entire
application of a stock option plan takes on a higher level of risk relative to the individual employee. While there is the opportunity to make a great deal of
money there is also the very real potential of not making any or even losing money. As a result, much of the debate has centered on the use of option
pricing theory to measure the value of options. The price of an option can be divided into two parts: intrinsic value and time value. Intrinsic value is the difference between
the fair market value of the underlying stock and the option price. The interest/time-value-of-money element is equal to the exercise price minus the discounted present value of the exercise price.
The discount rate used is the risk-free rate on U.S. government securities (Means and Coates 29). Accounting information plays an important role in
virtually every aspect of a stock option plan transaction ranging from price determination to issuance and profitability, as well as issues related to investors who are not employees. This
relationship emerges via derivatives and proofs of investment postulates connecting valuations in the commodity and capital markets (Salvary 26). Likewise, the analysis validates the differences between valuation of claims and
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