On the Accounting Valuation of Employee Stock Options

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Abstract
In its Exposure Draft, "Accounting for Stock-based Compensation," FASB proposes that either the Black-Scholes or binomial option pricing model be used to expense employee stock options, and that the value of these options be measured on their grant date with typically modest ex-post adjustment. This brings the accounting profession squarely up against the Scylla of imposing too narrow a set rules that will force many firms to misstate considerably the value of their stock options and the Charybdis of granting considerable latitude which will increase non-comparability across financial statements of otherwise similar firms. This, of course, is a common tradeoff afflicting many rules for external financial accounting.

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