Firm Valuation and Accounting for Employee Stock Options

The Financial Accounting Standards Board has issued a new standard changing the accounting treatment for employee stock options. For some firms, the new method may significantly affect the bottom line. Although seeking to require better recognition of an important item, the new standard also leaves...

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Bibliographic Details
Published in:Financial analysts journal 1997-01, Vol.53 (1), p.26-34
Main Authors: Coller, Maribeth, Julia L. Higgs
Format: Article
Language:English
Subjects:
Approximation
Circuses
Comparative analysis
Compensation
Dividends
Employees
Enterprises
Estimation methods
Fair value
FASB standards
FASB statements
Financial accounting standards
Financial analysis
Financial statements
Grants
Incentive plans
Methods
Options on stocks
Price volatility
Rates of return
SFAS 123
Stochastic models
Stock options
Stock prices
Strike prices
Studies
Valuation
Volatility
Yield
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Summary:The Financial Accounting Standards Board has issued a new standard changing the accounting treatment for employee stock options. For some firms, the new method may significantly affect the bottom line. Although seeking to require better recognition of an important item, the new standard also leaves much room for individual judgment in determining the amount of that item. We apply the new standard to six publicly traded corporations and demonstrate that, in some cases, significant differences in valuation may result when different, yet equally acceptable, calculation methods are used. As a result, financial statements of firms using the new standard should be interpreted with caution.
ISSN:0015-198X
1938-3312
DOI:10.2469/faj.v53.n1.2053