Backdating employee stock options accounting and legal implications datingcommission com

03-May-2016 15:29

On the surface - at least compared to some of the other shenanigans executives have been accused of in the past - the options backdating scandal seems relatively innocuous.

But ultimately, it can prove to be quite costly to shareholders.

They also fully disclose this compensation to investors, and deduct the cost of issuing the options from their earnings as they are required to do under the Sarbanes-Oxley Act of 2002.

But, there are also some companies out there that have bent the rules by both hiding the backdating from investors, and also failing to book the grant(s) as an expense against earnings.

(To learn more, read .) In short, it is this failure to disclose - rather than the backdating process itself - that is the crux of the options backdating scandal. To be clear, the majority of public companies handle their employee stock options programs in the traditional manner.

This means they must wait for the stock to appreciate before making any money.

(For more insight, see ) Although it may appear shady, public companies can typically issue and price stock option grants as they see fit, but this will all depend on the terms and conditions of their stock option granting program.

However, when granting options, the details of the grant must be disclosed, meaning that a company must clearly inform the investment community of the date that the option was granted and the exercise price. In addition, the company must also properly account for the expense of the options grant in their financials.

Do you ever wish that you could turn back the hands of time?

Some executives have, well, at least when it comes to their stock options.

This means they must wait for the stock to appreciate before making any money.(For more insight, see ) Although it may appear shady, public companies can typically issue and price stock option grants as they see fit, but this will all depend on the terms and conditions of their stock option granting program.However, when granting options, the details of the grant must be disclosed, meaning that a company must clearly inform the investment community of the date that the option was granted and the exercise price. In addition, the company must also properly account for the expense of the options grant in their financials.Do you ever wish that you could turn back the hands of time?Some executives have, well, at least when it comes to their stock options.(To learn more, see Cost to Shareholders The biggest problem for most public companies will be the bad press they receive after an accusation (of backdating) is levied, and the resulting drop in investor confidence.