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Essay / Research Paper Abstract
This 6-page paper focuses on the pros and cons of the FASB's controversial Accounting for Stock-Based Compensation, which would require that corporations report their stock options as expenses, rather than in footnotes of financial statements. Bibliography lists 6 sources.
Page Count:
6 pages (~225 words per page)
File: D0_MTfasbop.rtf
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Unformatted sample text from the term paper:
options. Options are ideal, as of now, mainly because owners arent taxed on the amount (at least, until they cash the options in), yet there is a chance for huge
gains on such options, as many executives found during the 1990s. This also helps companies, as companies have not been required necessarily to report this type of compensation.
However, the Financial Accounting Standards Board (FASB), in an attempt to force companies to stronger transparency in terms of accounting methods, has (again) put forward
a proposal to recognize employee stock options as an income statement expense (Abrams, 2003). In order to do this, the options would need to be valuated according to fair market
value, then expensed on balance sheets (Abrams, 2003). As of now, stock option grants are reported as a footnote of financial statements (Haber, 1994).
The problem comes, however, when these options are exercised, or cashed in. As we saw in the Enron scenario, when executives began cashing in on their options, the price
of the actual stock dropped. As the price dropped, the value of the stock dropped until it was zero. At the very end, employees held thousands of stock options that
were worth absolutely nothing. Because of this scenario, the FASB wants companies to value options, to provide shareholders with a clear picture of total asset valuation, not just those assets
that can be used to generate income or expense. Needless to say, this proposal - which operates under the name of Accounting for
Stock-based Compensation -- has generated a lot of supporters and critics. In this paper, well examine both sides of the issue, then determine if the FASB proposal offers any merit.
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