Chapter 19, Problem 1BCC

Basis for Conclusions Case 1: Are Employee Stock Options Really an Expense?

U S GAAP did not require companies to expense employee stock options through the income statement prior to 2005 Paragraphs B2 through B11 in the Statement of Financial Accounting Standard No. 123(R) basis for conclusions indicate that reaching an agreement to require employee stock option expensing was a long journey Companies made a number of arguments opposing reporting this expense on their income statements, as laid out in the basis for conclusions in SFAS No 123(R) (paragraphs B16 through B20 and B27 through B32) Provide a brief explanation of each of the arguments, a summary of the response from the standard setters, and your assessment of the appropriateness of the standard setting boards’ responses.