Open AccessAn Alternative Method Of Accounting For Stock Options
Author(s) -
Thomas J. Smith,
Adrian Valencia,
Ara Volkan
Publication year - 2014
Publication title -
journal of applied business research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.149
H-Index - 22
eISSN - 2157-8834
pISSN - 0892-7626
DOI - 10.19030/jabr.v30i2.8415
Subject(s) - vesting , fair value , valuation (finance) , stock options , restricted stock , accounting , non qualified stock option , economics , business , stock (firearms) , actuarial science , financial accounting , accounting information system , stock market , finance , mechanical engineering , art , paleontology , horse , engineering , visual arts , biology
Currently, the grant date fair value of employee stock options is expensed over the vesting period. Our study introduces a new valuation approach for stock options and examines the impact of this change on earning per share (EPS) for a sample of firms over the period 2002-2011. The new valuation approach provides data useful to the Financial Accounting Standards Board (FASB) as it determines whether to revise the current option accounting rules. Under the proposed approach, options are valued at their intrinsic value on the grant date (i.e., the opportunity cost or the economic promise associated with the difference between the exercise price of the option and the market price of the stock at each measurement date) and further revalued each reporting date until the options are exercised.