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James Ohlson, S. Penman (2005)
Debt vs. Equity: Accounting for Claims Contingent on Firms' Common Stock Performance with Particular Attention to Employee Compensation Options
Christine Wiedman, Carol Marquardt (2004)
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Steven Huddart (1994)
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J. Core, W. Guay, S. Kothari (2001)
The Economic Dilution of Employee Stock Options: Diluted Eps for Valuation and Financial ReportingCorporate Finance: Capital Structure & Payout Policies
This article investigates the most appropriate accounting treatment for expensing the fair value of employee share options (ESOs) in financial statements. The debate centres around whether the grant date or the exercise date is the most appropriate date for determining the value at which the ESOs are eventually accrued within the financial statements. After examining accounting models for each of the above measurement dates, the article concludes that exercise date accounting best reflects the economic substance of the ESO transaction. Therefore, the IASB should consider revising its definition of equity to encompass only existing shareholders, leaving all other financial obligations to be classified as liabilities.
Meditari Accountancy Research – Emerald Publishing
Published: Oct 1, 2005
Keywords: Employee share option; Equity; Exercise date; Grant date; Liability; Opportunity cost
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