Question

Which of the following is true about the current accounting standard on employee stock options?

Select one:

a. The standard requires companies to report employee stock options as long term liability on the balance sheet

b. The standard requires companies to report employee stock options only after employees exercise stock options

c. The standard requires companies to report employee stock options as an expense on the income statement

d. The standard was a result of a long debate on purely accounting measurement from 1993 to 2005

Answer 1

Correct answer is b) The standard requires companies to report employee stock options only after employees exercise stock options

Current accounting standards require firms to recognize employee stock option as an expense (deduct from their income) the value of the compensation they provide in the form of employee stock options. Stock options granted are recognised over a period of vesting i.e the period during which performance obligation is to be made. Expense is recognised and a corrspodning entry is made through employee stock option reserve.