Debate the thoeries of Accounting for stock options Research Paper

Debate the thoeries of Accounting for bank line options - Research melodic theme ExampleFair value modelling, lattice model and finally minimum value rule which is found upon the someones willingness to purchase a call option on a share of stock at the current fair value of the stock with the right to postpone payment of the exercise until the termination of the options period, ignoring the volatility of the underlying stock in valuation calculation. This has necessitated the emergence of alternative incentive methods to premium funds thus employee stock options. Any stock option with exercise price high than the price of the underlying stocks at the exercise date are exchanged for new ones with lower exercise price because companies encounter to account for the stock issued to their employees. But the companies receive to account for them although they do not incur any be to grant the options. Guides and standards on how such transactions are accounted for in the books o f the company have to be provided. inventorying option fee that needs to be looked at is the backdating of employee stock option and how it affects the company. Agency theory argues that compensation policy should provide management with incentives to select and implement actions that add shareholder wealth. Discussion Pertaining the use of the inbuilt value method of accounting for stock options, a company is to value stock options based on their inbuilt value at that juncture they were granted. Intrinsic value refers to the difference between the stocks market price on the grant date and also including the exercise price at which the employees place use the option to purchase stock. Incase the stocks market price is slightly higher than the option exercise price, therefore, the stock options value is the difference between the two. Realizing the shortcomings of the method there is need to look for a more comprehensive and efficient method of stock options .By using this meth od it will result in no compensation expense since we grant employees options with exercise prices same as the fair market value of the underlying stock at the time of the grant. Fair value was advance to be used but it was not a mandatory requirement to be used by the companies as stipulated by the Financial Accounting Standards Board (FASB). The fair value accounting approach value stock options basing on various factors that establish the underlying value. This is because the companies are to outlay for option grants based on the fair value of the options that were expected to vest on the date it granted them. In December 2004, FASB issued a Statement of Financial Accounting Standards (Statement) No. 123(R), Share-Based Payment. Statement 123(R) replaced Statement 123, Accounting for Stock-Based Compensation, and was consequently effective for overt companies as of July 1, 2005. It was effective for non-public companies as of January 1, 2006. The company had an option of eithe r using Black-Schole option pricing model or the binomial option so as to come up with the options fair value. However, if the company continues with the intrinsic value of the approach they required to avail additional closure in the footnotes to their financial on what the expenses would have been with fair value approach. Under Statement 123, the company is only allowed to disclose information on the make