Accounting for executive stock options: A case study in avoiding tough decisions

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Journal Article
Australian Accounting Review, 2002, 12 (26), pp. 3 - 10
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We review the development of accounting requirements for executive stock options (ESOs) and find that the standard-setting process has been susceptible to pressure groups including the corporate sector, politicians and even the accounting profession itself. The failure of Australian and overseas accounting regulators to take tough decisions may have created a systematic bias towards the use of ESOs which can result in grossly inefficient compensation structures motivated by a desire to maximise reported profits rather than to create optimal managerial incentives. We conclude that most of the arguments against recognition of stock option expense can be dismissed as blatant self-interest at worst, or remarkably muddled thinking at best. © 2002 CPA Australia.
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