The Study On Accounting Problems Of Executive Stock Option

For modern enterprises characterized by separation of ownership and management right, it is a focus of corporate governance study to find out how stockholders, as the trustors, could effectively motivate and supervise managers to work hard for maximizing the wealth of stockholders. Executive stock option (ESO) is much more effective than other motivational techniques, while its accounting treatment is more controversial. Whether accounting treatment is correct or not is quite important for stock option motivation. China introduced the incentive mechanism of stock option in late 1990s, and formulated related accounting standards in February, 2006. For the development of Chinese enterprises, it makes great senses to improve the accounting standards and make the stock option motivation work better.In the essay, three aspects-recognition, measurement and disclosure-of stock option accounting treatment are theoretically discussed with normative research method. Firstly, the essence of stock option and connotation of the involved accounting elements are analyzed, and ESO accounting recognition is discussed in terms of recognition elements and time. Secondly, ESO accounting measurement is studied in a realistic view. In the condition that ESO is recognized as equity, we can draw a conclusion that fair value is the best way for stock option measurement, and the "grant date" is the optimal measurement date. In this foundation, the idea of "the stakeholder has no rights to avoid the fees based on fair value of grant date by changing or canceling the stock option" functions as a guideline, and it makes the accounting treatment clearer in the situation of stock option exercising, changing, canceling and settling; it separates the process of executive's exercise into two parts-stakeholder buys back equity and executive purchases stock by cash, and stakeholder should determine the motivation cost according to the higher value between fair value of grant date and intrinsic value of exercise date. Thirdly, the content of accounting disclosure is analyzed in the aspects of on-balance-sheet verification and off-balance-sheet disclosure. In the essay, the accounting standards related to stock option in China are researched and compared with relative ones abroad, and the shortness of our standards elaboration is pointed out. In addition, implementation of the new accounting standards among our public companies is summarized according to the new version of financial statement, and in the process of implementation, corresponding solutions are proposed to solve the problems such as "accounting treatment of motivation fund withdrawal", "recognition of motivation cost of stock transfer", etc. Because there exist some adverse economical consequences, which are caused by different measurements specific to share-based payment of different settlement methods, the standards should be modified as following:①be it equity settlement or cash settlement, the entity should, within the vesting period, follow the same treating method, ie. Recognize compensation expense based on grant-day fair value together with corresponding equity or liability on each balance sheet day during vesting period;②in each balance sheet day during vesting period, provided that the inner value of options or stock appreciation rights(the balance between balance-sheet-day stock price and grant-day execution price) outweighs grant-day fair value, the balance should turn out as contingent liability after multiplying with expected right execution amount and be disclosed.