Executive Stock Option Accounting Research

Executive Stock Option is a kind of stock-based incentive method, which is popular among western countries from the middle of 20th century. People pay more and more attention to ESO for its obvious effect in solving the 'principle/agent' problem. The ESO system was introduced to our country in the late of 90' s, and was used in many quoted companies and high-tech companies. This thesis mainly focuses on the accounting recognition, calculation and disclosure of ESO. The thesis also introduced the concept of stock-based competency, stock-based incentive, the advantages of ESO, its meanings and the accounting of derivative instruments.With the development of accounting system, recognition of many economic transactions such as the accounting of derivative instruments is accepted. In the traditional accounting system, ESO can' t be recognized because it can' t agree with the definition of any accounting factor. When the traditional accounting system recognizes derivative instruments, ESO can be recognized in the way of derivative instrument' s recognition. The economic essence of the ESO is that the managers share the enterprise' s residue, that is the manager share the profits. In the future, with the human resources become more and more important in the modern enterprises, the concept of human capital may be accepted by the traditional accounting system. At that time, ESO should be treated as part of division of profit.ESO is suitable for quoted corporations and high-tech companies. But now, there are many problems and barriers in the procedure of ESO' s application in the enterprises. The problems are that the stock market is not very normal, manager market is still not very mature and the corporation internal control systems still need to be improved. At present, all kinds of stock-based incentives which are testing in Shanghai, Wuhan, Hangzhou are probably belong to deferred stock incentives and different with the real ESO. In our country, if enterprises want to apply ESO to encourage their employees, they' d better treat ESO with simple principle, that is adopt "internal value" to recognize ESO as cost and do the related accounting treatments.