SEC Accountants Weigh in on Stock Options

The Chief Accountant of the Securities and Exchange Commission issued a letter regarding the application of accounting research on stock options and recent complications in past practices regarding stock options. Among specific issues addressed are restatements of income caused by accounting errors in stock option grants, past corporate practices in granting options and determination of the grant award date. Specific concerns mentioned included backdating of grants, administrative delays and grant timing, uncertainty about recipient of grants and whether the grant was even legitimate, insufficient documentation of the grant process and tax ramifications of the option grants.

For many years, stock options have been a major part of executive compensation for most middle-sized and large corporations. It appears that such options are likely to be more closely regulated in the future.