Stock Option Plans Give Employees the Option to Purchase (A)

question 112

Essay

Stock option plans give employees the option to purchase (a) a specified number of shares of the firm's stock, (b) at a specified price, (c) during a specified period of time. One of the most heated controversies in standard-setting history has been the debate over the amount of compensation to be recognized as expense for stock options. At issue is how the value of stock options is measured, which for most options determines whether any expense at all is recognized. The opposition included corporate executives, auditors, members of Congress, and the SEC.
Required:
Describe the primary objections of critics of the FASB's eventually successful attempt to require expensing of the fair value of the options.

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Definitions:

Future Market Value

The anticipated value of an asset at a future date, based on projections or market trends.

Transferring Uncertainty

The process of moving the risk of a particular outcome from one party to another, often through the use of insurance or hedging techniques.

Obsolescence Concerns

Worries related to a product or system becoming obsolete or outdated, leading to a potential decrease in its value or utility.

Reduce Uncertainty

The action or practice of making a situation or outcome more predictable or less ambiguous.