Study Of Executive Stock Options Accounting Issues

The current thesis consists of 5 chapters. Chapters 1, 2 & 5 are devoted to the research of the Executive Stock Option (or ESO), its basic concepts, economic nature and the prospect of its implementation in China. Chapters 3&4, drawing on the research of the previous two chapters, focus on the ESO-related accounting issues. Chapter 5 is the actual application of the current study.Chapter 1: The evolution, features, and components of ESOThe chapter starts with a look into the history and rapid developments of ESO. The authors points out a mistake that exists in relevant Chinese literature regarding the origin time of ESO in the United States. Through the analysis and comparison of the ESO-related concepts, including option, employee ownership plans, phantom stock, restricted stock, delayed payment and savings stocks, the authors identifies the most outstanding feature of ESO, i.e. an incentive contract between the enterprise owner and the manager. The chapter goes on to examine the basic components and contents of ESO.Chapter 2: The theoretical analysis of the ESO incentive mechanism Within the framework of modern enterprise theories, the author attempts to throw light on the economic nature of ESO incentive mechanism, thus laying a foudation for the analysis of accouting issues hi the later chapters.2.1 The Client-Agent relationship in modern enterprisesModern enterprises, in contrast to classic capitalist enterprises, features the seperation of enterprise ownership and its management, which inevitably results hi a client-agent relationship, creating agent costs. Among the agent costs, the current thesis is concerned with the incentive costs and ESO, two very closely related parts.2.2 Moral risks, human capital and incentive policyThe necessity and importance of incentive policy are examined from two perspectives: the moral risks shouldered by modern enterprise managers and the importance of human capital in the management of modern enterprises as well as the characteristics of managers as human capital.2.3 Surplus Claim and the implementation of incentive policyManagers actually play a decisive role in the surplus of an enterprise, thus they need to have incentives to stimulate the work. Surplus Claim is the actual implementation of such stimulation. The author illustrates the interaction between ESO and Surplus Claim.2.4 Incentive mechanism testimony from Game TheoryThe client-agent relationship between the enterprise owner and the manager and the incentive mechanism to adjust such a relationship are testified through an example of a simplified cooperative game theory model.2.5 ESO effects analysisIn this section, the positive and negative effects generated by ESO are analyzed.Chapter 3 The intrinsic accounting issues of ESOThe intrinsic accounting issues of ESO refers to the accounting recognition, measurement and information disclosure of ESO. In light of the relevant American accounting standards, the author attempts a systematic analysis of the intrinsic accounting issues of ESO. Combining the research of the previous two chapters and accounting theories, based on the economic nature of ESO, this chapter looks at 'whether' and 'how' ESO can be reflected in accounting.3.1 Review of the American ESO Accounting StandardsA brief review is conducted concerning the ARB 37, 13B/ARB 43 and APB 25 of the American Accounting Research Newsletter, and the FAS 123 of Financial Accounting Standards.3.2 Accounting recognition of ESOOn the basis of the definitions of accounting recognition and enterprise costs, as well as FASB's conditions for ESO cost recognition, the author comes to the major conclusion of the current thesis, namely, ESO does not meet the definition of expense, as it reflects the profit-sharing relationship between the owner and the manager. Neither does it meet the definition of any elements of financial statement, thus is beyond the scope that accounting deals with.3.3 ESO measurementThe authors holds that accounting recognition and...