Academic journal article Journal of Accountancy

FASB Issues Proposal on Stock Option Compensation

Academic journal article Journal of Accountancy

FASB Issues Proposal on Stock Option Compensation

Article excerpt

The Financial Accounting Standards Board issued proposed standards for stock-based compensation plans.

The proposal, Accounting for Stock-based Compensation, requires companies to recognize an expense for all stock-based compensation awards, including stock options, granted after December 31, 1996. The expense will be measured as the award's fair value at the grant date and will be recognized over the vesting period. The proposal does not specify the type of option-pricing model to be used but provides guidance for selecting the assumptions to be used with the model.

Beginning in 1994, companies will be required to disclose the effect of the recognition requirements on net income and earnings per share in notes to financial statements as if they had been adopted. The delay in the proposal's recognition provisions should allow employers to become accustomed to option-pricing models and financial statement users to familiarize themselves with the new information.

Michael P. Bohan, regional center controller for BP America, Inc. …

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