Encouraging the expensing of stock options


The FASB in SFAS No. 123, "Accounting for Stock-Based Options." encourages (but does not require) companies to recognize compensation expense based on the fair value of stock options awarded to their employees and managers. Early drafts of this proposal required the recognition of the fair value of the options. But the FASB met opposition from companies and chose to only encourage the recognition of fair value. Recently, however, FASB has revised this standard (SFAS 123R) so as to require recognition of option compensation expense.

Discuss the role you believe the following parties should play in the accounting standard promulgation process:

  • FASB
  • SEC
  • Congress
  • Companies (CEO)
  • Accounting firms
  • Investors

Discuss which parties lobbied for the change from requiring expense recognition to only encouraging the expensing of stock options.

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Finance Basics: Encouraging the expensing of stock options
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