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Share option |
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Abstract The concept of expensing options is central of the share options debate when they are providing to employees and executives as part of their remuneration. This paper argues that companies will be required to report employee stock option grants as an expense on their income statements. In addition, we argue that share options are “cost” to shareholder and so it should be included in the Profit and Loss Statement. ... Finally, we draw the conclusion, which disclosure of executive’s share option on their income statement is necessary. Introduction Expensing stock option on income statement has been debated bitterly and publicly, especially when large numbers of options have been granted to high-profile executives. ... In this essay, we try to explain that stock option should recognize as expense on income statement. ... The recognition of an expense for share-based payment in the current accounting standard arose a lot of problems, in addition, AASB also issue the proposed accounting standard of ED106, which requires that options should be valued at net fair value at vesting date. Definition of stock option Stock option gives the holder the right to buy stock in the future at a "strike" price fixed when the option is granted. ... In finance, Option is “a contract that gives the holder the right, but not the obligation, to buy (or sell) an asset at a specified price and date”. The key elements associated with an option are the underlying asset (as per forward contracts); the holder has a right, but not an obligation; the specified price at which the holder can transact; and the date that the option expires. (Frino, Cusack, Wilson, 2001,p326) When share options to be a part of executives’ compensation packages become more popular in many companies, expensing stock options direct us to consider that whether stock option meet the definition of expenses In SAC4"Expenses" are consumptions or losses of future economic benefits in the form of reductions in assets or increases in liabilities of the entity, other than those relating to distributions to owners, that result in a decrease in equity during the reporting period. ... In addition, this management system motivate executive to act from the interest of shareholder, because they will share the stakes in the companies they manage. In terms of executives, since option is right, executives exercise it when share price increase, but if the share price falls, the executive does not have to buy the shares for more than they are worth and there fore avoid the loss. ... In addition, there is income tax benefit; no income tax is due when you exercise the option, unless you cash in the shares at the same time. ... 22) However, there are still some risks to receive share option instead of salary in cash, you have to gamble the share price, which will growth potentially. On the other hand, if the company collapse, option becomes a scrap paper. ... Consequently, controversy of including stock option in executive compensation naturally rose. ... Particularly since lavish option awards reduce the value of shares outstanding, options are compensation and should be treated. ... In 1988, FASB has concluded expense should be considered for a stock option based on its fair value at the grant date and recognized ratably over the vesting period. ... , using up of the resources received for the shares or option. Usually we issue share for acquiring assets, and the result will undoubtedly record as expense along with depreciating asset for its expected life. ... Because the option was issued for the obtaining the employees’ service instead of asset, we can not simply depreciate it. However, to recognize stock option as expense does not discrepancy with the definition of expense. |
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Title: Share option
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