ESOP
Employee Stock Option Plans
The paper analyzes an important issue concerning how corporation should account for employee stock option plans including non-transferable stock options. It is suggested that current GAAP has enabled corporations to improperly accounting for these option, by overstating their compensation expense. Not only is the compensation expense being entirely over stated, it is also being over stated during the service period of the stock option. From the date of grant to the date of exercise of this option, the company is not incurring any expenses from the stock option. The only expense they should really be recognizing is the potential spread of the stock option. The basic idea behind the matching principle is to match expenses with revenues; this seems to be over looked using current GAAP. Instead of using this current GAAP, it is encouraged that the market value percentage approach be used in accounting for employee stock option plans. This would be consistent with other current GAAP for accounting for stock appreciation rights, which appropriately match expenses with revenues. It is stated, ?If this trend continues, the credibility of financial accounting will continue to be eroded.? this is such a
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