A CBO Paper: Accounting for Employee Stock Options
CONGRESSIONAL BUDGET OFFICE (U S CONGRESS) WASHINGTON DC
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Current accounting standards require firms to recognize as an expense deduct from their income the value of the compensation they provide in the form of employee stock options. For some types of employee stock options they grant, however firms can choose how to measure that value. They can use the immediate-exercise value intrinsic value, which is usually zero, or an estimate of the market value fair value, which is almost always greater than zero. As a result, firms may assign a cost of zero to that portion of compensation made up of grants of employee stock options. That practice results in overstatement of reported net income.
- Economics and Cost Analysis