Executive Stock Option Accounting Issues

The Executive Stock Option (orESO) originally came out as an incentive mechanism in American in the 50's last century. It developed in the 80's and increased quickly in the 90's last century. Finally the ESO was introduced to China and many companies were interested in it. As a result, the accounting treatment of it became more and more important and it soon turns into a hot issue. This thesis intends to discuss about the ESO and its economic nature then tries to give advices on accounting methods.The current thesis composes of 3 parts to clarify this topic.Part 1 (Chapter 1) : the background of the ESOThis part starts with the concept of the ESO. The author compares the compensation for executives in west developed country's to that of Chinese executives, then points out the lack of long term incentive mechanism for executives in our country. After that the author introduces the sorts and the operation of ESO.Part 2: the accounting issues of the ESOThis part includes Chapter 2, Chapter 3 and Chapter 4.The author aims at the solution of the accounting problems. The accounting issues of ESO refers to the accounting recognition, measurement and information disclosure of ESO. The author holds that how to make an accounting recognition of ESO depends on the economic nature itself and ESO should belong to the "ESO" accounting item-a type of special equity, which reflects the fact that the executive get the residual claim so the original equity has to be distributed again; while ESO should be measured by fair value since it has the character of the derivative financial instrument which adopt the fair value measurement; with regard to the information disclosure of ESO, the author draws the conclusion that the emphases of information disclosure ought to be in the notes of financial statements after the accounting recognition and measurement problems have been solved. Which financial accounting policy is adopted and the content of ESO plan should be laid stress on so that the financial statement users can get useful decision information.Part 3: the actuality of ESO in China and suggestions on accounting treatmentThis part includes Chapter 5 and Chapter 6. Considering that ESO came out for a short time and there is lack of regulation to comply with, the author discussed the actuality of ESO and feasibility in China then gives the accounting treatment suggestions. The author suggests that the accounting treatment can be modified min-value method since the securities market in the state is of wake efficiency then changed into the fair-value method when the securities became more efficient.