Executive Stock Option Accounting Issues

All the while, Executive Stock Option (ESO) has been considered by experts of corporate governance as the effective incentive scheme to solve principal-agent problems. This incentive mechanism harmonizes the contradiction between managers and shareholders through sharing residual claim, and impels both to seek the identical benefit, then promoting the managers to create the outstanding performance to meet the objective of maximizing the shareholders' value. In 1999, "The decision about some important issues of state –owned enterprises (SOEs) reform and development" affirmed the distribution method of trying to practice "stock option plan". After that, many enterprises, especially listed companies, have developed stock option incentive mechanism and put them to practice actively. Nowadays, more and more enterprises in our country try to distribute stock option to managers and key technicians. According to the information from the investigation system of Chinese enterprisers "2003·The investigation report for Chinese managers growing up and development", until Sept.2002,3.7% of all inquisitional enterprises (3539) have already adopted the awards form of "stock option". According to the report in the Chinese Security Daily of March.20, 2002, by the end of 2001, there had been 86 listed companies which quoted in stock market "A" adopted stock option plan to promote their mangers and employees, which taking 7.57% of all listed companies in Shanghai and Shenzhen stock markets. It can be expected that, along with more and more enterprises making the newly incentive mechanisms as the main point of perfecting corporate governance and improving their competition strength, we can expect that there will be a large number of enterprises to adopt the stock option system in the near future. ESO system involves extensive matters, but the accounting for stock option is the core content of them. The scientific and reasonable accounting process of ESO relate with development and incentive of stock option system directly, which will influence the incentive function. As a result of the research of national stock option system lies in preliminary and trying out phases, there are many papers about accounting for stock option have been published since 1999. But those papers are still short of complete, systematic research. That is why this thesis is written.This thesis discusses the specific issues about recognition, measurement and disclosure pertaining to stock option on the support of the basic accounting theory and conceptual framework of financial accounting; meanwhile, it reiterates the historic evolution and changes to the accounting process, and pays high attention to the social and economic environments the accounting standard relies on, as well as the supporting theories behind them, by which improves the depth and range during the research. On the above foundations, the author gives out the policy proposes on the accounting of Chinese stock option.There are three parts (six chapters) in this thesis:Chapter I "The general study on Executive Stock Options", defines the concept of ESO firstly, and makes analysis on its characteristics and stimulating mechanism. After that the thesis introduces the recent development at home and abroad. For the consideration of the present situation, the author concludes the system of stock options has been applied more and more widely. Next, the thesis analyses the stimulating effect of ESO from two perspectives: benefits of companies and of executives.Chapter II "The economic analysis on Executive Stock Options", ESO are being analyzed from the perspective of economics, aiming at seeking the theoretic foundation of generation and development. In this part the theories of principal-agent, human capital and contracts have been utilized for construing the system of stock options.Chapter III "The intrinsic accounting issues of Executive Stock Options" comprises three subsections:The first subsection is about the problem of recognizing stock options. St...