Accounting For Stock Options: Comparison Of Alternative Approaches

Abstract

The Financial Accounting Standards Board in Standard No. 123 requires the disclosure of the annual option expense assuming a market based static model is used to measure the option "value" at issue data. This study reviews and tests alternative measures of accounting for stock options that were previously proposed by the Board. Our results suggest the exercise date model provides a measure of option expense which more consistently reflexes the changes in the market value of the option.