Accounting For Employee Stock Options As Contingencies

Abstract

The accounting profession has long attempted to improve the disclosure of compensatory stock option information in financial reporting. While evidence of inconsistent practice has been publicized and acknowledged, suggestions for readjustment center largely around technicalities. The purpose of this article is to: (1) identify the inherent weakness of existing accounting principles on stock options, and (2) propose a new framework to account for employee stock options so that conflicting issues can be resolved in theory as well as in accounting practice.