Teori Harga Opsi. Teori penetapan harga opsi. Setiap pendekatan berbasis model atau teori untuk menghitung nilai wajar dari suatu opsi. Model yang paling sering digunakan saat ini adalah model Black-Scholes dan model binomial. Kedua teori tentang pilihan harga memiliki luas Margin untuk kesalahan karena nilai mereka berasal dari aset lain, biasanya harga saham biasa perusahaan. Waktu juga memainkan peran besar dalam teori harga opsi, karena perhitungan melibatkan periode waktu beberapa tahun dan lebih Pilihan yang dapat dipasarkan memerlukan metode penilaian yang berbeda daripada non - marketable, seperti yang diberikan kepada karyawan perusahaan. BREAKING DOWN Option Pricing Theory. Bagaimana opsi saham harus dinilai telah menjadi perdebatan penting dalam beberapa tahun terakhir karena perusahaan AS sekarang diharuskan untuk membebankan biaya opsi saham karyawan pada mereka Laporan laba rugi Bagi banyak perusahaan muda yang melakukan perdagangan di bursa saham hari ini, biaya ini akan sangat penting, tidak peduli metode penilaian apa Digunakan Kebutuhan akan perawatan yang konsisten dan akurat dari biaya yang meningkat ini memberikan insentif untuk menciptakan solusi baru dan inovatif terhadap teori penetapan harga opsi. Untuk Opsi Saham Waktu Terakhir Adalah Biaya. Waktunya telah tiba untuk mengakhiri perdebatan tentang akuntansi untuk opsi saham Kontroversi telah berlangsung terlalu lama Sebenarnya, peraturan yang mengatur pelaporan opsi saham eksekutif dimulai pada tahun 1972, ketika Dewan Prinsip Akuntansi, pendahulu Dewan Standar Akuntansi Keuangan FASB, menerbitkan APB 25 Aturan tersebut menetapkan bahwa Biaya opsi pada tanggal pemberian hibah harus diukur dengan nilai intrinsiknya selisih antara nilai pasar wajar saat ini dari saham dan harga pelaksanaan opsi Dengan metode ini, tidak ada biaya yang diberikan pada opsi ketika harga pelaksanaannya ditetapkan pada Harga pasar saat ini. Alasan untuk aturan itu cukup sederhana Karena tidak ada uang tunai yang berpindah tangan saat hibah dibuat, mengeluarkan opsi saham bukan eko. Transaksi yang signifikan secara signifikan Itulah yang banyak dipikirkan pada saat ini. Lebih dari itu, sedikit teori atau praktik tersedia pada tahun 1972 untuk membimbing perusahaan dalam menentukan nilai instrumen keuangan yang tidak terdidik tersebut. APB 25 sudah usang dalam setahun Publikasi pada tahun 1973 di Black - Scholes formula memicu ledakan besar di pasar untuk opsi yang diperdagangkan secara publik, sebuah gerakan yang diperkuat oleh pembukaan, juga pada tahun 1973, dari Chicago Board Options Exchange Sudah pasti tidak ada kebetulan bahwa pertumbuhan pasar opsi yang diperdagangkan tercermin dari penggunaan yang meningkat. Hibah opsi saham dalam kompensasi eksekutif dan karyawan Pusat Nasional untuk Kepemilikan Karyawan memperkirakan bahwa hampir 10 juta karyawan menerima opsi saham pada tahun 2000 kurang dari 1 juta pada tahun 1990 Segera menjadi jelas baik dalam teori maupun praktik bahwa opsi apa pun layak dilakukan Lebih dari nilai intrinsik yang didefinisikan oleh APB 25.FASB memprakarsai penelaahan atas opsi saham pada tahun 1984 dan, setelah lebih dari satu dekade Kontroversi yang memanas, akhirnya menerbitkan PSAK 123 pada bulan Oktober 1995. Disarankan namun tidak mengharuskan perusahaan untuk melaporkan biaya opsi yang diberikan dan untuk menentukan nilai pasar wajar mereka dengan menggunakan model penetapan harga opsi Standar baru tersebut adalah kompromi, yang mencerminkan lobi yang intens oleh pebisnis dan Politisi terhadap pelaporan wajib Mereka berargumen bahwa opsi saham eksekutif adalah salah satu komponen yang menentukan dalam kebangkitan kembali ekonomi Amerika yang luar biasa, jadi setiap upaya untuk mengubah peraturan akuntansi bagi mereka adalah sebuah serangan terhadap model Amerika yang sangat sukses untuk menciptakan bisnis baru Tak pelak, kebanyakan perusahaan Memilih untuk mengabaikan rekomendasi yang mereka lawan dengan sangat berapi-api dan terus mencatat hanya nilai intrinsik pada tanggal pemberian hibah, biasanya nol, dari hibah opsi saham mereka. Selanjutnya, kenaikan harga saham yang luar biasa membuat kritik terhadap opsi pengeluaran terlihat seperti rampasan. Kecelakaan, perdebatan telah kembali dengan sepenuh hati Serentetan perusahaan acc Skandal penipuan biasanya telah mengungkapkan betapa tidak nyatanya gambaran kinerja ekonomi mereka yang telah banyak pengecer dalam laporan keuangan mereka. Semakin banyak, para investor dan regulator telah menyadari bahwa kompensasi berbasis opsi merupakan faktor pendistorsi utama yang dimiliki AOL Time Warner pada tahun 2001, Sebagai contoh, biaya opsi saham karyawan yang dilaporkan seperti yang direkomendasikan oleh SFAS 123, akan menunjukkan kerugian operasional sekitar 1 7 miliar daripada 700 juta pendapatan operasional yang sebenarnya dilaporkan. Kami percaya bahwa kasus untuk opsi pengeluaran sangat banyak, dan Di halaman berikut kami memeriksa dan memberhentikan klaim utama yang diajukan oleh mereka yang terus menentangnya Kami menunjukkan bahwa, bertentangan dengan argumen para ahli ini, hibah opsi saham memiliki implikasi arus kas riil yang perlu dilaporkan, yaitu cara untuk mengukur Implikasinya tersedia, bahwa pengungkapan catatan kaki bukanlah pengganti yang dapat diterima untuk melaporkan transaksi di incom Pernyataan dan neraca, dan bahwa pengakuan penuh atas biaya opsi tidak perlu mengurangi insentif usaha kewirausahaan. Kami kemudian membahas bagaimana perusahaan dapat melaporkan biaya opsi pada laporan pendapatan dan neraca mereka. Fallacy 1 Opsi Saham Tidak Berwenang Biaya Nyata. Ini adalah prinsip dasar akuntansi bahwa laporan keuangan harus mencatat transaksi signifikan secara ekonomi. Tidak ada yang meragukan bahwa pilihan yang diperdagangkan memenuhi kriteria bernilai miliaran dolar yang dibeli dan dijual setiap hari, baik di pasar over-the-counter atau pada Pertukaran Bagi banyak orang, hibah opsi saham perusahaan adalah cerita yang berbeda Transaksi ini tidak signifikan secara ekonomi, argumennya berlanjut, karena tidak ada perubahan uang tunai. Seperti yang dikatakan CEO American Express Harvey Golub pada 8 Agustus 2002, Wall Street Journal Artikel, opsi saham hibah tidak pernah menjadi biaya bagi perusahaan dan, oleh karena itu, tidak boleh dicatat sebagai biaya pada laporan laba rugi. Pada posisi menentang logika ekonomi, belum lagi akal sehat, dalam beberapa hal Untuk memulai, transfer nilai tidak harus melibatkan transfer uang tunai Sementara transaksi yang melibatkan bukti penerimaan atau pembayaran cukup untuk menghasilkan transaksi yang dapat direkam, maka tidak Peristiwa yang diperlukan seperti pertukaran saham untuk aset, penandatanganan sewa, memberikan tunjangan pensiun atau liburan masa depan untuk pekerjaan saat ini, atau membeli materi secara kredit memicu transaksi akunting karena melibatkan pengalihan nilai, walaupun tidak ada uang tunai yang berubah pada saat itu. Transaksi terjadi. Bahkan jika tidak ada uang tunai yang berpindah tangan, mengeluarkan opsi saham kepada karyawan menimbulkan pengorbanan uang tunai, biaya kesempatan, yang perlu dipertanggungjawabkan Jika perusahaan memberikan opsi saham, bukan opsi, kepada karyawan, semua orang akan setuju Bahwa biaya perusahaan untuk transaksi ini adalah uang yang seharusnya diterima jika telah menjual saham dengan harga pasar saat ini kepada investor. Ini sama persis dengan opsi saham Ketika perusahaan memberikan opsi kepada karyawan, perusahaan tersebut membiarkan kesempatan untuk menerima uang dari penjamin emisi yang dapat mengambil opsi yang sama ini dan menjualnya ke pasar opsi kompetitif kepada investor Warren Buffett membuat hal ini secara grafis dalam sebuah 9 April 2002, kolom Washington Post ketika dia menyatakan Berkshire Hathaway akan dengan senang hati menerima opsi sebagai pengganti uang tunai untuk banyak barang dan jasa yang kami jual dari perusahaan Amerika. Berikan pilihan kepada karyawan daripada menjualnya ke pemasok atau investor melalui penjamin emisi. Kerugian sebenarnya dari uang tunai ke perusahaan. Tentu saja, lebih dapat dikatakan bahwa uang yang hilang dengan mengeluarkan opsi kepada karyawan, dan bukan menjualnya kepada investor, akan diimbangi dengan uang yang dilimpahkan perusahaan dengan membayar lebih sedikit uang kepada karyawannya. Sebagai dua ekonom yang dihormati secara luas, Burton G Malkiel dan William J Baumol, mencatat dalam artikel Wall Street Journal pada tanggal 4 April 2002, sebuah perusahaan wirausaha baru mungkin n Atau dapat memberikan kompensasi uang tunai yang diperlukan untuk menarik pekerja yang menonjol. Sebaliknya, ia dapat menawarkan opsi saham Tetapi Malkiel dan Baumol, sayangnya, tidak mengikuti pengamatan mereka terhadap kesimpulan logisnya. Jika biaya opsi saham tidak dimasukkan secara universal ke dalam pengukuran Dari laba bersih, perusahaan yang memberikan opsi akan mendasari biaya kompensasi, dan tidak memungkinkan untuk membandingkan tingkat keuntungan, produktivitas, dan tindakan pengembalian modal mereka dengan perusahaan yang setara secara ekonomi yang hanya menyusun sistem kompensasi mereka dengan cara yang berbeda. Ilustrasi hipotetis berikut ini menunjukkan bagaimana hal itu bisa terjadi. Beri dua perusahaan, KapCorp dan MerBod, bersaing dalam lini bisnis yang sama. Keduanya berbeda hanya dalam struktur paket kompensasi karyawan mereka KapCorp membayar pekerjanya 400.000 dengan total kompensasi dalam bentuk Uang tunai sepanjang tahun Pada awal tahun, hal itu juga terjadi, melalui underwriting, 100.000 senilai pilihan di pasar modal, yang tidak dapat dilakukan selama satu tahun, dan mengharuskan karyawannya untuk menggunakan 25 dari kompensasi mereka untuk membeli opsi yang baru dikeluarkan. Arus kas keluar bersih ke KapCorp adalah 300.000 400.000 dengan biaya kompensasi kurang dari 100.000 dari Penjualan pilihan. Pendekatan Bank Dunia hanya sedikit berbeda. Membayar 300.000 pekerjanya secara tunai dan mengeluarkannya secara langsung senilai 100.000 opsi pada awal tahun dengan pembatasan latihan satu tahun yang sama Secara ekonomi, kedua posisi itu identik Setiap perusahaan Telah membayar total 400.000 kompensasi, masing-masing telah mengeluarkan 100.000 opsi, dan untuk setiap arus kas keluar total 300.000 setelah uang yang diterima dari penerbitan opsi dikurangi dari uang yang dikeluarkan untuk kompensasi Karyawan di kedua perusahaan memegang hal yang sama. 100.000 pilihan sepanjang tahun, menghasilkan motivasi, insentif, dan efek retensi yang sama. Bagaimana sah adalah standar akuntansi yang memungkinkan dua Transaksi yang identik secara identik untuk menghasilkan angka yang sangat berbeda. Dalam mempersiapkan laporan akhir tahun, KapCorp akan membukukan biaya kompensasi sebesar 400.000 dan akan menunjukkan 100.000 opsi pada neraca akun ekuitas pemegang saham jika biaya opsi saham yang dikeluarkan untuk karyawan tidak Diakui sebagai biaya, bagaimanapun, MerBod akan membukukan biaya kompensasi hanya 300.000 dan tidak menunjukkan opsi yang dikeluarkan di neraca. Dengan asumsi pendapatan dan biaya yang sama, akan terlihat seolah-olah pendapatan MerBod lebih tinggi dari pada KapBorp MerBod juga. Tampaknya memiliki basis ekuitas yang lebih rendah daripada KapCorp, meskipun kenaikan jumlah saham yang beredar pada akhirnya akan sama untuk kedua perusahaan jika semua opsi dieksekusi Sebagai akibat dari rendahnya biaya kompensasi dan posisi ekuitas yang rendah, kinerja MerBod Oleh sebagian besar tindakan analitik akan tampak jauh lebih unggul daripada KapCorp. Distorsi ini, tentu saja, diulang setiap tahun bahwa th E dua perusahaan memilih berbagai bentuk kompensasi Seberapa sah standar akuntansi yang memungkinkan dua transaksi yang identik secara ekonomi menghasilkan angka yang sangat berbeda. Fallacy 2 Biaya Opsi Saham Karyawan Tidak Dapat Diperkirakan. Beberapa lawan opsi membayar untuk mempertahankan posisi mereka secara praktis, Tidak konseptual, alasan Model penetapan harga opsi dapat bekerja, menurut mereka, sebagai panduan untuk menilai pilihan yang diperdagangkan secara publik Tetapi mereka tidak dapat menangkap nilai opsi saham karyawan, yaitu kontrak pribadi antara perusahaan dan karyawan untuk instrumen tidak likuid yang tidak dapat dilakukan. Bebas dijual, ditukar, dijadikan agunan, atau dilindung nilai. Memang benar bahwa, secara umum, kurangnya likuiditas instrumen akan mengurangi nilainya ke pemegangnya. Tetapi kerugian likuiditas pemegang saham tidak ada bedanya dengan biaya yang dikeluarkan oleh emiten. Menciptakan instrumen kecuali jika emiten entah bagaimana mendapatkan keuntungan dari kurangnya likuiditas Dan untuk opsi saham, tidak adanya pasar likuid memiliki pengaruh yang kecil Pada nilai mereka untuk pemegang Keindahan besar model penentuan harga opsi adalah bahwa mereka didasarkan pada karakteristik saham yang mendasarinya Itulah mengapa mereka berkontribusi pada pertumbuhan luar biasa dari pasar pilihan selama 30 tahun terakhir Harga Black-Scholes Dari suatu opsi sama dengan nilai portofolio saham dan uang tunai yang dikelola secara dinamis untuk mereplikasi hasil pembayaran terhadap opsi tersebut. Dengan persediaan yang benar-benar likuid, investor yang tidak terikat sepenuhnya dapat sepenuhnya melakukan lindung nilai atas risiko opsi dan mengekstrak nilainya dengan menjual sedikit replikasi Portofolio saham dan kas Dalam hal ini, diskonto likuiditas pada opsi opsi akan menjadi minimal dan itu berlaku bahkan jika tidak ada pasar untuk perdagangan opsi secara langsung Oleh karena itu, likuiditas atau kekurangan dari pasar pada opsi saham tidak, oleh Itu sendiri, menyebabkan diskon pada opsi opsi kepada pemegangnya. Bank investasi, bank umum, dan perusahaan asuransi sekarang telah jauh melampaui dasar, 30-yea Model Black-Scholes tua untuk mengembangkan pendekatan untuk menentukan harga segala jenis opsi Standar yang eksotis Opsi diperdagangkan melalui perantara, di luar loket, dan di bursa Opsi terkait dengan fluktuasi mata uang Pilihan yang disematkan pada sekuritas yang kompleks seperti hutang konversi, saham preferen, Atau hutang yang dapat ditagih seperti hipotek dengan fitur prabayar atau kenaikan suku bunga dan tingkat keseluruhan Industri subform telah dikembangkan untuk membantu perorangan, perusahaan, dan manajer pasar uang membeli dan menjual sekuritas yang kompleks ini. Teknologi keuangan saat ini tentu saja memungkinkan perusahaan untuk menggabungkan semua fitur opsi saham karyawan. Ke dalam model penetapan harga Beberapa bank investasi bahkan akan mengutip harga untuk eksekutif yang ingin melakukan lindung nilai atau menjual opsi saham mereka sebelum melakukan vesting, jika rencana opsi perusahaan mereka mengizinkannya. Tentu saja, perkiraan berbasis rumus atau penjamin emisi mengenai biaya saham karyawan. Pilihannya kurang tepat daripada pembayaran tunai atau hibah saham Tapi laporan keuangan harus diupayakan Kira benar dalam merefleksikan realitas ekonomi daripada secara tepat salah Manajer secara rutin mengandalkan perkiraan untuk item biaya penting, seperti penyusutan pabrik dan peralatan dan ketentuan mengenai kewajiban kontinjensi, seperti pembersihan dan penyelesaian lingkungan masa depan dari tuntutan pertanggungjawaban produk dan proses pengadilan lainnya. Menghitung biaya pensiun karyawan dan tunjangan pensiun lainnya, misalnya, para manajer menggunakan perkiraan aktuaria untuk suku bunga masa depan, tingkat retensi karyawan, tanggal pensiun karyawan, umur panjang karyawan dan pasangan mereka, dan eskalasi biaya medis masa depan Model harga dan luas Pengalaman memungkinkan untuk memperkirakan biaya opsi saham yang dikeluarkan dalam periode tertentu dengan presisi yang sebanding dengan, atau lebih besar dari, banyak barang lain yang sudah ada di laporan pendapatan perusahaan dan neraca. Tidak semua keberatan menggunakan Black - Scholes dan model valuasi pilihan lainnya didasarkan pada d Jika kesulitan dalam memperkirakan biaya opsi yang diberikan Misalnya, John DeLong, dalam sebuah makalah Enterprise Competitive Enterprise Institute bulan Juni 2002 yang berjudul The Stock Options Controversy and the New Economy, berpendapat bahwa walaupun sebuah nilai dihitung menurut sebuah model, perhitungannya memerlukan penyesuaian Untuk mencerminkan nilai bagi karyawan Dia hanya setengah benar Dengan membayar karyawan dengan persediaan atau opsi sendiri, perusahaan memaksa mereka untuk memiliki portofolio keuangan yang sangat tidak terdiversifikasi, sebuah risiko yang diperparah oleh investasi sumber daya manusia karyawan di dalam Perusahaan juga Karena hampir semua individu menghindari risiko, kita dapat mengharapkan karyawan untuk memberi nilai lebih pada paket pilihan saham mereka daripada yang lain, terdiversifikasi dengan lebih baik, investor akan. Hal ini bertentangan dengan besarnya diskon risiko karyawan atau biaya bobot terbebani ini, karena Kadang-kadang disebut berkisar antara 20 sampai 50, tergantung pada volatilitas stok yang mendasarinya dan tingkat diversifikasi karyawan S portofolio Keberadaan biaya bobot mati ini terkadang digunakan untuk membenarkan skala remunerasi berbasis opsi yang tampaknya besar yang diberikan kepada eksekutif puncak. Perusahaan mencari, misalnya, untuk memberi penghargaan kepada CEO-nya dengan 1 juta opsi yang masing-masing bernilai 1.000 Pasar mungkin beralasan bahwa harus mengeluarkan 2.000 daripada 1.000 pilihan karena, dari sudut pandang CEO, opsi tersebut hanya bernilai 500 masing-masing. Kami akan menunjukkan bahwa penalaran ini memvalidasi titik awal kami bahwa opsi adalah pengganti uang tunai. Namun, sementara Mungkin bisa dibilang wajar untuk memperhitungkan biaya bobot bobot saat menentukan berapa kompensasi berbasis ekuitas seperti opsi untuk dimasukkan ke dalam paket gaji eksekutif, tentu tidak masuk akal untuk membiarkan biaya bobot mati mempengaruhi cara perusahaan mencatat biaya Paket Laporan keuangan mencerminkan perspektif ekonomi perusahaan, bukan entitas termasuk karyawan yang bertransaksi. Ketika perusahaan menjual produk Bagi seorang pelanggan, misalnya, ia tidak harus memverifikasi produk apa yang layak untuk orang tersebut. Ia menghitung pembayaran tunai yang diharapkan dalam transaksi tersebut sebagai pendapatannya. Begitu pula ketika perusahaan membeli produk atau layanan dari pemasok, hal itu Tidak memeriksa apakah harga yang dibayarkan lebih besar atau kurang dari biaya pemasok atau apa yang dapat diterima pemasok jika menjual produk atau jasa di tempat lain. Perusahaan mencatat harga pembelian sebagai uang tunai atau setara kas yang dikorbankan untuk memperoleh barang atau jasa. Menurut produsen pakaian adalah untuk membangun pusat kebugaran bagi para pegawainya Perusahaan tidak akan melakukannya untuk bersaing dengan klub kebugaran. Ini akan membangun pusat untuk menghasilkan pendapatan yang lebih tinggi dari peningkatan produktivitas dan kreativitas karyawan yang lebih sehat dan bahagia serta mengurangi biaya yang timbul dari Perputaran karyawan dan penyakit Biaya kepada perusahaan jelas biaya pembangunan dan pemeliharaan fasilitas, bukan nilai yang dimiliki oleh masing-masing karyawan Dapat menempatkan di atasnya Biaya pusat kebugaran dicatat sebagai biaya periodik, yang secara longgar disesuaikan dengan kenaikan pendapatan yang diharapkan dan pengurangan biaya terkait karyawan. Satu-satunya pembenaran yang masuk akal yang telah kita lihat untuk biaya opsi eksekutif di bawah nilai pasar mereka berasal dari Pengamatan bahwa banyak pilihan akan hilang saat karyawan pergi, atau dieksekusi terlalu dini karena penghindaran risiko karyawan Dalam kasus ini, ekuitas pemegang saham yang ada diencerkan kurang dari seharusnya, atau tidak sama sekali, akibatnya mengurangi biaya kompensasi perusahaan Sementara kami Setuju dengan logika dasar argumen ini, dampak dari penyitaan dan latihan awal mengenai nilai teoritis mungkin terlalu dibesar-besarkan. Lihat Dampak Nyata dari Penyitaan dan Latihan Awal di akhir artikel ini. Dampak Nyata dari Penyitaan dan Latihan Awal. Tidak seperti uang tunai Gaji, opsi saham tidak dapat ditransfer dari individu yang diberikan kepada orang lain Nontransferability memiliki dua efek yaitu com Bush untuk membuat pilihan karyawan kurang berharga daripada opsi konvensional yang diperdagangkan di pasar. Pertama, karyawan kehilangan pilihan mereka jika mereka meninggalkan perusahaan sebelum opsi diberikan di tempat Sampah Kedua, karyawan cenderung mengurangi risiko mereka dengan menggunakan opsi saham sebelumnya lebih cepat daripada perusahaan - Investor yang terdiversifikasi akan mengurangi potensi hasil yang jauh lebih tinggi jika mereka memiliki opsi untuk jatuh tempo. Pegawai dengan pilihan pribadi yang juga akan menggunakan uang mereka saat mereka berhenti, karena kebanyakan perusahaan mengharuskan karyawan untuk menggunakan atau kehilangan pilihan mereka pada saat keberangkatan. Dalam kedua kasus tersebut, dampak ekonomi pada perusahaan yang menerbitkan opsi berkurang, karena nilai dan ukuran relatif dari pemegang saham pemegang saham yang ada diencerkan kurang dari yang seharusnya, atau tidak sama sekali. Mengetahui meningkatnya probabilitas bahwa perusahaan akan diminta Untuk biaya pilihan saham, beberapa lawan berjuang tindakan barisan belakang dengan mencoba meyakinkan standar setter untuk merah secara signifikan Uce biaya yang dilaporkan dari pilihan tersebut, diskonkan nilainya dari yang diukur oleh model keuangan untuk mencerminkan kemungkinan kuat penyitaan dan latihan awal Proposal saat ini diajukan oleh orang-orang ini kepada FASB dan IASB akan memungkinkan perusahaan untuk memperkirakan persentase opsi yang dibatalkan selama Periode vesting dan mengurangi biaya hibah opsi dengan jumlah ini Selain itu, daripada menggunakan tanggal kedaluwarsa untuk pilihan hidup dalam model penetapan harga opsi, proposal tersebut berusaha untuk memungkinkan perusahaan menggunakan kehidupan yang diharapkan untuk opsi tersebut untuk mencerminkan kemungkinan Latihan awal Menggunakan perkiraan umur dimana perusahaan memperkirakan pada mendekati periode vesting, katakanlah, empat tahun, bukan periode kontrak, katakanlah, sepuluh tahun, secara signifikan akan mengurangi taksiran biaya opsi. Beberapa penyesuaian harus dilakukan untuk penyitaan Dan latihan awal Tetapi metode yang diusulkan secara signifikan melebih-lebihkan pengurangan biaya karena hal itu mengabaikan keadaan di mana pilihan paling banyak Kemungkinan akan dibatalkan atau dieksekusi lebih awal Bila keadaan ini diperhitungkan, pengurangan biaya opsi karyawan kemungkinan akan jauh lebih kecil. Pertama, pertimbangkan penyitaan Penggunaan persentase rata-rata untuk kerugian berdasarkan pada pergantian karyawan historis atau calon karyawan hanya berlaku jika penyitaan Adalah peristiwa acak, seperti undian, terlepas dari harga saham. Namun kenyataannya, kemungkinan penyitaan berhubungan negatif dengan nilai opsi yang hilang dan, oleh karena itu, dengan harga saham itu sendiri Orang lebih cenderung meninggalkan perusahaan. Dan kehilangan pilihan ketika harga saham telah menurun dan pilihannya sedikit berharga. Tetapi jika perusahaan telah melakukannya dengan baik dan harga saham telah meningkat secara signifikan sejak tanggal pemberian opsi, pilihannya akan menjadi jauh lebih berharga, dan karyawan akan cenderung tidak Cuti Jika perputaran karyawan dan penyitaan lebih mungkin terjadi bila pilihannya paling tidak berharga, maka sedikit pilihan biaya total pada tanggal pemberian kompensasi dikurangi karena Penggunaan probabilitas penyitaan. Argumen untuk latihan dini serupa Hal ini juga tergantung pada harga saham masa depan Karyawan akan cenderung berolahraga lebih awal jika sebagian besar kekayaan mereka terikat di perusahaan, mereka perlu melakukan diversifikasi, dan mereka tidak memiliki kepentingan lain. Cara untuk mengurangi eksposur risiko mereka terhadap harga saham perusahaan Eksekutif senior, bagaimanapun, dengan kepemilikan opsi terbesar, tidak mungkin melakukan latihan lebih awal dan menghancurkan opsi nilai ketika harga saham meningkat secara signifikan Seringkali mereka memiliki saham tak terbatas, yang dapat mereka jual sebagai Cara yang lebih efisien untuk mengurangi eksposur risiko mereka Atau mereka memiliki cukup banyak taruhan untuk kontrak dengan bank investasi untuk melakukan lindung nilai posisi opsi mereka tanpa melakukan exercise secara prematur Seperti halnya dengan fitur penyitaan, perhitungan pilihan hidup yang diharapkan tanpa memperhatikan besarnya kepemilikan Dari karyawan yang berolahraga lebih awal, atau kemampuan mereka untuk melakukan lindung nilai atas risiko mereka melalui cara lain, secara signifikan akan meremehkan biaya opsi hibah Ed. Option-pricing models dapat dimodifikasi untuk menggabungkan pengaruh harga saham dan besarnya pilihan karyawan dan kepemilikan saham terhadap probabilitas penyitaan dan latihan awal. Lihat, misalnya, artikel Rubinstein s Fall 1995 di Journal of Derivatives On Penilaian Akuntansi atas Opsi Saham Karyawan Besarnya penyesuaian ini harus didasarkan pada data perusahaan tertentu, seperti apresiasi harga saham dan distribusi opsi hibah antar karyawan. Penyesuaian, penilaian yang benar, dapat berubah menjadi jauh lebih kecil daripada yang diusulkan. Perhitungan yang tampaknya disahkan oleh FASB dan IASB akan menghasilkan Memang, bagi beberapa perusahaan, penghitungan yang mengabaikan penyitaan dan latihan awal sama sekali bisa mendekati pilihan biaya sebenarnya daripada yang sama sekali mengabaikan faktor-faktor yang mempengaruhi pengambilan keputusan karyawan dan keputusan latihan awal. 3 Biaya Opsi Saham Sudah Diurapi dengan Baik. Argumen lain dalam def Ense dari pendekatan yang ada adalah bahwa perusahaan telah mengungkapkan informasi tentang biaya opsi hibah dalam catatan kaki ke laporan keuangan Investor dan analis yang ingin menyesuaikan laporan pendapatan untuk biaya opsi, oleh karena itu, memiliki data yang diperlukan yang tersedia Kami menemukan bahwa Argumen sulit ditelan Seperti yang telah kami tunjukkan, ini adalah prinsip dasar akuntansi bahwa laporan laba rugi dan neraca harus menggambarkan ekonomi dasar perusahaan Mengaitkan item dengan kepentingan ekonomi utama seperti pilihan karyawan untuk catatan kaki secara sistematis akan mendistorsi Reports. But bahkan jika kita menerima prinsip bahwa pengungkapan catatan kaki cukup memadai, kenyataannya kita akan menganggapnya sebagai pengganti yang buruk untuk mengenali biaya secara langsung pada pernyataan utama. Sebagai permulaan, analis investasi, pengacara, dan regulator sekarang menggunakan database elektronik Untuk menghitung rasio profitabilitas berdasarkan angka di perusahaan yang mengaudit statem pendapatan Ents dan neraca Analis yang mengikuti perusahaan individual, atau bahkan sekelompok kecil perusahaan, dapat membuat penyesuaian untuk informasi yang diungkapkan dalam catatan kaki. Tetapi itu akan menjadi sulit dan mahal untuk dilakukan oleh sekelompok besar perusahaan yang telah memasukkan berbagai jenis data dalam Berbagai format yang tidak standar menjadi catatan kaki Jelas, jauh lebih mudah untuk membandingkan perusahaan pada tingkat lapangan bermain, di mana semua biaya kompensasi dimasukkan ke dalam angka pendapatan. Berapa banyak, jumlah yang diungkapkan dalam catatan kaki dapat kurang dapat diandalkan daripada yang diungkapkan di primer. Laporan keuangan Untuk satu hal, eksekutif dan auditor biasanya meninjau catatan kaki pelengkap yang terakhir dan mencurahkan lebih sedikit waktu untuk mereka daripada yang mereka lakukan pada angka di laporan utama. Sebagai satu contoh saja, catatan kaki dalam laporan tahunan TA 2000 menunjukkan rata-rata tertimbang - Tanggal opsi wajar opsi yang diberikan selama tahun 1999 sebesar 105 03 untuk satu tahun dimana rata-rata harga pelaksanaan rata-rata saham yang diberikan adalah 64 59 Bagaimana nilai opsi yang diberikan bisa lebih dari nilai saham tidak jelas. Pada TA 2000, efek yang sama dilaporkan nilai wajar opsi yang diberikan 103 79 dengan harga rata-rata latihan 62 69 Tampaknya , Kesalahan ini akhirnya terdeteksi, karena laporan TA 2001 secara surut menyesuaikan nilai wajar rata-rata hibah tahun 1999 dan 2000 menjadi 40 45 dan 41 40, masing-masing Kami yakin eksekutif dan auditor akan memberikan ketekunan dan perawatan yang lebih besar untuk mendapatkan perkiraan biaya yang dapat diandalkan Dari opsi saham jika angka-angka ini termasuk dalam laporan pendapatan perusahaan daripada yang mereka lakukan untuk pengungkapan catatan kaki. Rekan kerja kami William Sahlman dalam artikel HBR pada bulan Desember 2002, Expensing Options Entries Tidak ada, telah menyatakan keprihatinan bahwa kekayaan informasi bermanfaat yang terdapat dalam catatan kaki tentang Opsi saham yang diberikan akan hilang jika opsi dibagikan. Tetapi pastinya mengenali biaya opsi dalam laporan laba rugi tidak menghalangi conti. Nuing untuk memberikan catatan kaki yang menjelaskan distribusi hibah yang mendasari dan metodologi dan masukan parameter yang digunakan untuk menghitung biaya opsi saham. Beberapa kritik atas pilihan opsi yang dikeluarkan berdebat, karena kapitalis ventura John Doerr dan CEO FedEx Frederick Smith melakukannya pada bulan April 5, 2002, kolom New York Times, bahwa jika pengeluaran diperlukan, dampak opsi akan dihitung dua kali dalam pendapatan per saham pertama sebagai potensi pengenceran pendapatan, dengan meningkatkan jumlah saham yang beredar, dan kedua sebagai tuduhan terhadap laporan Pendapatan Hasilnya akan menghasilkan pendapatan per saham yang tidak akurat dan menyesatkan. Kami memiliki beberapa kesulitan dengan argumen ini. Pertama, biaya opsi hanya masuk ke dalam perhitungan laba per saham yang dilusian berdasarkan GAAP ketika harga pasar saat ini melebihi harga opsi opsi. Jadi, sepenuhnya Angka EPS dilusian masih mengabaikan semua biaya pilihan yang hampir dalam bentuk uang atau bisa jadi dalam uang jika harga saham meningkat secara signifikan Dalam waktu dekat. Kedua, relegating penentuan dampak ekonomi dari opsi saham hibah hanya untuk perhitungan EPS sangat mendistorsi pengukuran pendapatan dilaporkan, tidak akan disesuaikan untuk mencerminkan dampak ekonomi dari biaya opsi Langkah-langkah ini adalah ringkasan yang lebih signifikan dari Perubahan nilai ekonomi suatu perusahaan daripada distribusi pendapatan tahunan yang diproyeksikan kepada pemegang saham individual yang terungkap dalam ukuran EPS Hal ini menjadi sangat jelas ketika dibawa ke absurditas logisnya. Misalkan perusahaan mengimbangi semua pemasok material, tenaga kerja, energi, dan pembelian mereka. Layanan dengan opsi saham daripada dengan uang tunai dan menghindari semua pengakuan biaya dalam laporan pendapatan mereka Penghasilan dan tindakan profitabilitas mereka semua akan terlalu meningkat karena tidak berguna untuk tujuan analitik hanya nomor EPS yang akan mengambil efek ekonomi dari opsi hibah Namun, keberatan terbesar kami terhadap klaim palsu ini adalah perhitungan fu EPS yang dilumasi tidak sepenuhnya mencerminkan dampak ekonomi dari hibah opsi saham Contoh hipotetis berikut ini menggambarkan masalah, meskipun untuk tujuan kesederhanaan kita akan menggunakan hibah saham dan bukan opsi. Alasannya sama persis untuk kedua kasus tersebut. Katakanlah bahwa Masing-masing dari dua perusahaan hipotetis kami, KapCorp dan MerBod, memiliki 8.000 saham beredar, tidak ada hutang, dan pendapatan tahunan 100.000 Kapororp tahun ini memutuskan untuk membayar karyawan dan pemasoknya 90.000 secara tunai dan tidak memiliki biaya lain, MerBod mengkompensasi karyawannya dan Pemasok dengan 80.000 uang tunai dan 2.000 saham, dengan harga pasar rata-rata 5 per saham Biaya untuk masing-masing perusahaan adalah 90.000 yang sama. Tapi jumlah laba bersih dan EPS mereka sangat berbeda dengan laba bersih Kapor sebelum pajak 10.000, atau 1 25 per saham Sebaliknya, MerBod's melaporkan laba bersih yang mengabaikan biaya ekuitas yang diberikan kepada karyawan dan pemasok adalah 20.000, dan EPS-nya adalah 2 00 yang memperhitungkan t Dia saham baru dikeluarkan. Tentu saja, kedua perusahaan sekarang memiliki saldo kas dan jumlah saham yang berbeda dengan klaim pada mereka. Tetapi KapCorp dapat menghilangkan ketidaksesuaian tersebut dengan menerbitkan 2.000 saham di pasar pada tahun ini dengan harga jual rata-rata 5 per saham Sekarang kedua perusahaan memiliki saldo kas penutupan 20.000 dan 10.000 saham yang beredar Berdasarkan peraturan akuntansi saat ini, bagaimanapun, transaksi ini hanya memperparah kesenjangan antara angka EPS Kapcorp yang melaporkan pendapatan tetap 10.000, karena 10.000 nilai tambahan diperoleh dari penjualan the shares is not reported in net income, but its EPS denominator has increased from 8,000 to 10,000 Consequently, KapCorp now reports an EPS of 1 00 to MerBod s 2 00, even though their economic positions are identical 10,000 shares outstanding and increased cash balances of 20,000 The people claiming that options expensing creates a double-counting problem are themselves creating a smoke screen to hide the income-di storting effects of stock option grants. The people claiming that options expensing creates a double-counting problem are themselves creating a smoke screen to hide the income-distorting effects of stock option grants. Indeed, if we say that the fully diluted EPS figure is the right way to disclose the impact of share options, then we should immediately change the current accounting rules for situations when companies issue common stock, convertible preferred stock, or convertible bonds to pay for services or assets At present, when these transactions occur, the cost is measured by the fair market value of the consideration involved Why should options be treated differently. Fallacy 4 Expensing Stock Options Will Hurt Young Businesses. Opponents of expensing options also claim that doing so will be a hardship for entrepreneurial high-tech firms that do not have the cash to attract and retain the engineers and executives who translate entrepreneurial ideas into profitable, long-term growth. This argument is flawed on a number of levels For a start, the people who claim that option expensing will harm entrepreneurial incentives are often the same people who claim that current disclosure is adequate for communicating the economics of stock option grants The two positions are clearly contradictory If current disclosure is sufficient, then moving the cost from a footnote to the balance sheet and income statement will have no market effect But to argue that proper costing of stock options would have a significant adverse impact on companies that make extensive use of them is to admit that the economics of stock options, as currently disclosed in footnotes, are not fully reflected in companies market prices. More seriously, however, the claim simply ignores the fact that a lack of cash need not be a barrier to compensating executives Rather than issuing options directly to employees, companies can always issue them to underwriters and then pay their employees out of the money re ceived for those options Considering that the market systematically puts a higher value on options than employees do, companies are likely to end up with more cash from the sale of externally issued options which carry with them no deadweight costs than they would by granting options to employees in lieu of higher salaries. Even privately held companies that raise funds through angel and venture capital investors can take this approach The same procedures used to place a value on a privately held company can be used to estimate the value of its options, enabling external investors to provide cash for options about as readily as they provide cash for stock. That s not to say, of course, that entrepreneurs should never get option grants Venture capital investors will always want employees to be compensated with some stock options in lieu of cash to be assured that the employees have some skin in the game and so are more likely to be honest when they tout their company s prospects to provid ers of new capital But that does not preclude also raising cash by selling options externally to pay a large part of the cash compensation to employees. We certainly recognize the vitality and wealth that entrepreneurial ventures, particularly those in the high-tech sector, bring to the U S economy A strong case can be made for creating public policies that actively assist these companies in their early stages, or even in their more established stages The nation should definitely consider a regulation that makes entrepreneurial, job-creating companies healthier and more competitive by changing something as simple as an accounting journal entry. But we have to question the effectiveness of the current rule, which essentially makes the benefits from a deliberate accounting distortion proportional to companies use of one particular form of employee compensation After all, some entrepreneurial, job-creating companies might benefit from picking other forms of incentive compensation that argua bly do a better job of aligning executive and shareholder interests than conventional stock options do Indexed or performance options, for example, ensure that management is not rewarded just for being in the right place at the right time or penalized just for being in the wrong place at the wrong time A strong case can also be made for the superiority of properly designed restricted stock grants and deferred cash payments Yet current accounting standards require that these, and virtually all other compensation alternatives, be expensed Are companies that choose those alternatives any less deserving of an accounting subsidy than Microsoft, which, having granted 300 million options in 2001 alone, is by far the largest issuer of stock options. A less distorting approach for delivering an accounting subsidy to entrepreneurial ventures would simply be to allow them to defer some percentage of their total employee compensation for some number of years, which could be indefinitely just as com panies granting stock options do now That way, companies could get the supposed accounting benefits from not having to report a portion of their compensation costs no matter what form that compensation might take. What Will Expensing Involve. Although the economic arguments in favor of reporting stock option grants on the principal financial statements seem to us to be overwhelming, we do recognize that expensing poses challenges For a start, the benefits accruing to the company from issuing stock options occur in future periods, in the form of increased cash flows generated by its option motivated and retained employees The fundamental matching principle of accounting requires that the costs of generating those higher revenues be recognized at the same time the revenues are recorded This is why companies match the cost of multiperiod assets such as plant and equipment with the revenues these assets produce over their economic lives. In some cases, the match can be based on estimates of t he future cash flows In expensing capitalized software-development costs, for instance, managers match the costs against a predicted pattern of benefits accrued from selling the software In the case of options, however, managers would have to estimate an equivalent pattern of benefits arising from their own decisions and activities That would likely introduce significant measurement error and provide opportunities for managers to bias their estimates We therefore believe that using a standard straight-line amortization formula will reduce measurement error and management bias despite some loss of accuracy The obvious period for the amortization is the useful economic life of the granted option, probably best measured by the vesting period Thus, for an option vesting in four years, 1 48 of the cost of the option would be expensed through the income statement in each month until the option vests This would treat employee option compensation costs the same way the costs of plant and equip ment or inventory are treated when they are acquired through equity instruments, such as in an acquisition. In addition to being reported on the income statement, the option grant should also appear on the balance sheet In our opinion, the cost of options issued represents an increase in shareholders equity at the time of grant and should be reported as paid-in capital Some experts argue that stock options are more like contingent liability than equity transactions since their ultimate cost to the company cannot be determined until employees either exercise or forfeit their options This argument, of course, ignores the considerable economic value the company has sacrificed at time of grant What s more, a contingent liability is usually recognized as an expense when it is possible to estimate its value and the liability is likely to be incurred At time of grant, both these conditions are met The value transfer is not just probable it is certain The company has granted employees an equity security that could have been issued to investors and suppliers who would have given cash, goods, and services in return The amount sacrificed can also be estimated, using option-pricing models or independent estimates from investment banks. There has to be, of course, an offsetting entry on the asset side of the balance sheet FASB, in its exposure draft on stock option accounting in 1994, proposed that at time of grant an asset called prepaid compensation expense be recognized, a recommendation we endorse FASB, however, subsequently retracted its proposal in the face of criticism that since employees can quit at any time, treating their deferred compensation as an asset would violate the principle that a company must always have legal control over the assets it reports We feel that FASB capitulated too easily to this argument The firm does have an asset because of the option grant presumably a loyal, motivated employee Even though the firm does not control the asset in a legal sense, it does capture the benefits FASB s concession on this issue subverted substance to form. Finally, there is the issue of whether to allow companies to revise the income number they ve reported after the grants have been issued Some commentators argue that any recorded stock option compensation expense should be reversed if employees forfeit the options by leaving the company before vesting or if their options expire unexercised But if companies were to mark compensation expense downward when employees forfeit their options, should they not also mark it up when the share price rises, thereby increasing the market value of the options Clearly, this can get complicated, and it comes as no surprise that neither FASB nor IASB recommends any kind of postgrant accounting revisions, since that would open up the question of whether to use mark-to-market accounting for all types of assets and liabilities, not just share options At this time, we don t have strong feelings about whether the benefit s from mark-to-market accounting for stock options exceed the costs But we would point out that people who object to estimating the cost of options granted at time of issue should be even less enthusiastic about reestimating their options cost each quarter. We recognize that options are a powerful incentive, and we believe that all companies should consider them in deciding how to attract and retain talent and align the interests of managers and owners But we also believe that failing to record a transaction that creates such powerful effects is economically indefensible and encourages companies to favor options over alternative compensation methods It is not the proper role of accounting standards to distort executive and employee compensation by subsidizing one form of compensation relative to all others Companies should choose compensation methods according to their economic benefits not the way they are reported. It is not the proper role of accounting standards to distort executive and employee compensation by subsidizing one form of compensation relative to all others. A version of this article appeared in the March 2003 issue of Harvard Business Review. Accrual accounting is the financial reporting model used by the majority of profit-oriented companies and by many not-for-profit companies The fact that companies use the same model is important to financial statement users Investors and creditors use financial information to make their resource allocation decisions It s critical that they be able to compare financial information among companies To facilitate these comparisons, financial accounting employs a body of standards known as generally accepted accounting principles set of both broad and specific guidelines that companies should follow when measuring and reporting the information in their financial statements and related notes of-ten abbreviated as GAAP and pronounced gap GAAP are a dynamic set of both broad and specific guidelines that companies should f ollow when measuring and reporting the information in their financial statements and related notes The more important broad principles or standards are discussed in a subsequent section of this chapter and revisited throughout the text in the context of accounting applications for which they provide conceptual support 7 More specific standards, such as how to measure and report a lease transaction, receive more focused attention in subsequent chapters. HISTORICAL PERSPECTIVE AND STANDARDS. Pressures on the accounting profession to establish uniform accounting standards began to surface after the stock market crash of 1929 Some feel that insufficient and misleading financial statement information led to inflated stock prices and that this contributed to the stock market crash and the subsequent depression. The 1933 Securities Act and the 1934 Securities Exchange Act were designed to restore investor confidence The 1933 act sets forth accounting and disclosure requirements for initial offer ings of securities stocks and bonds The 1934 act applies to secondary market transactions and mandates reporting requirements for companies whose securities are publicly traded on either organized stock exchanges or in over-the-counter markets 8 The 1934 act also created the Securities and Exchange Commission SEC responsible for setting accounting and reporting standards for companies whose securities are publicly traded. The Securities and Exchange Commission SEC was created by Congress with the 1934 Securities Exchange Act. In the 1934 act, Congress gave the SEC both the power and responsibility for setting accounting and reporting standards for companies whose securities are publicly traded However, the SEC, a government appointed body, has delegated the primary responsibility for setting accounting standards to the private sector It is important to understand that the SEC delegated only the responsibility, not the authority, to set standards The power still lies with the SEC If the S EC does not agree with a particular standard issued by the private sector, it can force a change in the standard In fact, it has done so in the past. The SEC has the authority to set accounting standards for companies, but has delegated the responsibility to the accounting profession. The SEC does issue its own accounting standards in the form of Financial Reporting Releases FRRs , which regulate what must be reported by companies to the SEC itself These standards usually agree with those previously issued by the private sector To learn more about the SEC, consult its Internet site at 9.Early Standard Setting The first private sector body to assume the task of setting accounting standards was the Committee on Accounting Procedure CAP the first private sector body that was delegated the task of setting accounting standards The CAP was a committee of the American Institute of Accountants AIA national organization of professional public accountants The AIA, which was renamed the American In stitute of Certified Public Accountants AICPA national organization of professional public accountants in 1957, is the national organization of professional public accountants From 1938 to 1959, the CAP issued 51 Accounting Research Bulletins ARBs which dealt with specific accounting and reporting problems No theoretical framework for financial accounting was established This approach of dealing with individual issues without a framework led to stern criticism of the accounting profession. In 1959 the Accounting Principles Board APB the second private sector body delegated the task of setting accounting standards replaced the CAP Members of the APB also belonged to the AICPA The APB operated from 1959 through 1973 and issued 31 Accounting Principles Board Opinions APBOs , various Interpretations, and four Statements The Opinions also dealt with specific accounting and reporting problems Many ARBs and APBOs have not been superseded and still represent authoritative GAAP. The Accounting Pr inciples Board APB followed the CAP. The APB s main effort to establish a theoretical framework for financial accounting and reporting was APB Statement No 4, Basic Concepts and Accounting Principles Underlying Financial Statements of Business Enterprises Unfortunately, the effort was not successful. The APB was composed of members of the accounting profession and was supported by their professional organization Members participated in the activities of the board on a voluntary, part-time basis The APB was criticized by industry and government for its inability to establish an underlying framework for financial accounting and reporting and for its inability to act quickly enough to keep up with financial reporting issues as they developed Perhaps the most important flaw of the APB was a perceived lack of independence Composed almost entirely of public accountants, the board was subject to the criticism that the clients of the represented public accounting firms were exerting self-interes ted pressure on the board and influencing their decisions Other interest groups were underrepresented in the standard-setting process. Current Standard Setting Criticism of the APB led to the creation in 1973 of the Financial Accounting Standards Board FASB the current private sector body that has been delegated the task of setting accounting standards and its supporting structure The FASB differs from its predecessor in many ways There are seven full-time members of the FASB, compared to 18 21 part-time members of the APB While all of the APB members belonged to the AICPA, FASB members represent various constituencies concerned with accounting standards Members have included representatives from the accounting profession, profit-oriented companies, accounting educators, and government The APB was supported financially by the AICPA, while the FASB is supported by its parent organization, the Financial Accounting Foundation FAF responsible for selecting the members of the FASB and its Ad visory Council, ensuring adequate funding of FASB activities, and exercising general oversight of the FASB s activities The FAF is responsible for selecting the members of the FASB and its Advisory Council, ensuring adequate funding of FASB activities, and exercising general oversight of the FASB s activities 10 The FASB is, therefore, an independent, private sector body whose members represent a broad constituency of interest groups 11.The FASB currently sets accounting standards. In 1984, the FASB s Emerging Issues Task Force EITF responsible for providing more timely responses to emerging financial reporting issues was formed to provide more timely responses to emerging financial reporting issues The EITF membership includes 15 individuals from public accounting and private industry, along with a representative from the FASB and an SEC observer The membership of the task force is designed to include individuals who are in a position to be aware of emerging financial reporting issues The task force considers these emerging issues and attempts to reach a consensus on how to account for them If consensus can be reached, generally no FASB action is required The task force disseminates its rulings in the form of EITF Issues These pronouncements are considered part of generally accepted accounting principles. The Emerging Issues Task Force EITF identifies financial reporting issues and attempts to resolve them without involving the FASB. If a consensus can t be reached, FASB involvement may be necessary The EITF plays an important role in the standard-setting process by identifying potential problem areas and then acting as a filter for the FASB This speeds up the standard-setting process and allows the FASB to focus on pervasive long-term problems. One of the FASB s most important activities has been the formulation of a conceptual framework deals with theoretical and conceptual issues and provides an underlying structure for current and future accounting and reporting st andards The conceptual framework project, discussed in more depth later in this chapter, deals with theoretical and conceptual issues and provides an underlying structure for current and future accounting and reporting standards The FASB has issued seven Statements of Financial Accounting Concepts SFACs to describe its conceptual framework The board also has issued over 150 specific accounting standards, called Statements of Financial Accounting Standards SFASs , as well as numerous FASB Interpretations and Technical Bulletins 12.In addition to issuing specific accounting standards, the FASB has formulated a conceptual framework to provide an underlying theoretical and conceptual structure for accounting standards. Graphic 1-2 summarizes this discussion on accounting standards The top of the graphic shows the sources of accounting standards in order of authority Congress gave the SEC the responsibility and authority to set accounting standards, specifically for companies whose securitie s are publicly traded The SEC has delegated the task to various private sector bodies currently the FASB while retaining its legislated authority. G RAPHIC 1-2 Accounting Standard Setting. The lower portion of the graphic summarizes the framework for selecting the principles to be used in preparing financial statements in conformity with generally accepted accounting principles The GAAP hierarchy includes the authoritative pronouncements and interpretations of the SEC, CAP, APB, and FASB, as well as AICPA industry guides, bulletins and interpretations The FASB recently decided to categorize these various sources in descending order a through d of authority Previously, this formalization of a hierarchy existed only in the auditing literature 13.Accounting standards and the standard-setting process discussed above relate to standards governing the measurement and reporting of information for profit-oriented organizations In 1984, the Government Accounting Standards Board GASB responsible f or developing accounting standards for governmental units such as states and cities was created to develop accounting standards for governmental units such as states and cities The GASB operates under the oversight of the Financial Accounting Foundation and the Governmental Accounting Standards Advisory Council. THE ESTABLISHMENT OF ACCOUNTING STANDARDS A POLITICAL PROCESS. The setting of accounting and reporting standards often has been characterized as a political process Standards, particularly changes in standards, can have significant differential effects on companies, investors and creditors, and other interest groups A change in an accounting standard or the introduction of a new standard can result in a substantial redistribution of wealth within our economy. The role of the FASB in setting accounting standards is a complex one Sound accounting principles can provide significant guidance in determining the appropriate method to measure and report an economic transaction However, t he FASB must gauge the potential economic consequences of a change in a standard to the various interest groups as well as to society as a whole One obvious desired consequence is that the new standard will provide a better set of information to external users and thus improve the resource allocation process. The FASB must consider potential economic consequences of a change in an accounting standard or the introduction of a new standard. An example of possible adverse economic consequences is the issue of accounting for postretirement employee health care benefits Many corporations guarantee to pay the health care and life insurance costs of their employees after retirement Traditionally, these companies accounted for these benefits as expenses in the period in which they made payments to or on behalf of retired employees In 1989, the FASB proposed that these costs be accounted for by recognizing expenses over the period of employment rather than after retirementpanies feared that the n ew standard would seriously depress their annual income, and as a result, they would be forced to reduce their health care costs for retirees to soften the effect of the new standard A survey of 992 large companies found that during the two years following the adoption of the new standard, 79 of the companies surveyed changed their retiree medical plans Of those, 78 increased retirees share of costs and 1 eliminated all coverage 14 As a specific example, American Telephone and Telegraph Co in 1989 negotiated with its union to pay health care benefits to retirees only up to a maximum fixed amount, as opposed to unlimited medical benefits offered by many companies Of course, AT s decision to limit retiree medical benefits may have been purely a business decision unrelated to the new reporting requirements 15 Or, the new accounting standard may have caused companies like AT Employers Accounting for Postretirement Benefits Other Than Pensions, was issued in 1990.Another example of the effe ct of economic consequences on standard setting is the highly controversial debate surrounding accounting for employee stock options Employees often are given the option to buy shares in the future at a preset price as an integral part of their total compensation package The accounting objective for any form of compensation is to report compensation expense during the period of service for which the compensation is given At issue is the amount of compensation to be recognized as expense for stock options. CARL LANDEGGER If this becomes GAAP generally accepted accounting principles , it will cause pain It will cause evil People will literally lose their health care benefits 16.Historically, options have been measured at their intrinsic value, which is the simple difference between the market price of the shares and the option price at which they can be acquired For instance, an option that permits an employee to buy 60 stock for 42 has an intrinsic value of 18 The problem is that options for which the exercise price equals the market value of the underlying stock at the date of grant which describes most plans have no intrinsic value and thus result in zero compensation when measured this way, even though the fair value of the options can be quite substantial To the FASB and many others, it seems counterintuitive to not record any compensation expense for arrangements that routinely provide a large part of the total compensation of executives. In 1995, after lengthy debate, the FASB bowed to public pressure and consented to encourage, rather than require, companies to expense the fair value of employee stock options Recently, nearly a decade later, the contentious issue resurfaced, and the FASB issued an exposure draft requiring companies to measure options at their fair values and to expense that amount over an appropriate service period This issue is discussed at greater length in Chapter 19.Public pressure sometimes prevails over conceptual merit in the standard-set ting arena. The most recent example of the political process at work in standard setting is the heated debate that occurred on the issue of accounting for business combinations Back in 1996, the FASB added to its agenda a project to consider a possible revision in the practice of allowing two separate and distinct methods of accounting for business combinations, the pooling of interests method and the purchase method A thorough explanation of the differences between these methods is beyond the scope of this text For our discussion here, just note that a key issue in the debate related to goodwill, an intangible asset that arises only in business combinations accounted for using the purchase method Under the then-existing standards, goodwill, like any other intangible asset, was amortized expensed over its estimated useful life thus reducing reported net income for several years following the acquisition It was that negative impact on earnings that motivated many companies involved in a business combination to take whatever steps necessary to structure the transaction as a pooling of interests, thereby avoiding goodwill, its amortization to expense, and the resulting reduction in earnings. As you might guess, when the FASB initially proposed eliminating the pooling method, many companies that were actively engaged in business acquisitions vigorously opposed the elimination of this means of avoiding goodwill To support their opposition these companies argued that if they were required to use purchase accounting, many business combinations important to economic growth would prove unattractive due to the negative impact on earnings caused by goodwill amortization and would not be undertaken. DENNIS POWELL CISCO SYSTEMS, INC VP Clearly the FASB listened and responded to extensive comments from the public and the financial community to make the purchase method of accounting more effective and realistic 17.To satisfy opposition to its proposal, the FASB suggested several modi fications over the years, but it wasn t until the year 2000 that a satisfactory compromise was reached Specifically, under the new accounting standards issued in 2001 18 only the purchase method is acceptable, but to soften the impact, the resulting goodwill is not amortized We discuss goodwill and its measurement in Chapters 10 and 11.The FASB s dilemma is to balance accounting considerations and political considerations resulting from perceived possible adverse economic consequences To help solve this dilemma, the board undertakes a series of elaborate information-gathering steps before issuing a substantive accounting standard involving alternative accounting treatments for an economic transaction These steps include open hearings, deliberations, and requests for written comments from interested parties For example, 467 comment letters were received on the 1989 proposal concerning accounting for postretirement employee health care benefits Graphic 1-3 outlines the FASB s standard-se tting process. The FASB undertakes a series of information-gathering steps before issuing a substantive accounting standard. G RAPHIC 1-3 The FASB s Standard-Setting Process. These steps are the FASB s attempt to acquire consensus as to the preferred method of accounting, as well as to anticipate adverse economic consequences The board s process is similar to that of an elected political representative, a U S congresswoman for example, trying to determine consensus among her constituency before voting on a bill on the floor of the House of Representatives For this reason, accounting standard setting is a political process. OUR GLOBAL MARKETPLACE. Advances in communication and transportation systems continue to expand the marketplace in which companies operate The world economy is more integrated than ever, and many of the larger U S corporations are truly multinational in nature These multinational corporations have their home in the United States but operate and perhaps raise capital in ot her countries For example, Coca-Cola IBM Colgate-Palmolive Gillette and many other companies generate more than 50 of their revenue from foreign sales It is not uncommon for even relatively small companies to transact business in many different countries. Many U S and foreign companies operate and raise capital in more than one country. Of course, many foreign corporations operate in the United States as well In fact, companies such as Columbia Records and Bridgestone Americas Holding are owned by companies that reside in other countries The financial marketplace also has taken on a global dimension, with many companies crossing geographic boundaries to raise capital For example, nearly 500 foreign companies are listed on the New York Stock Exchange and nearly 400 foreign companies are listed on the London Stock Exchange This expanded marketplace requires that company management understand the laws, customs, regulations, and accounting and reporting standards of many different countries. Toward Global Accounting Standards Most industrialized countries have organizations responsible for determining accounting and reporting standards In some countries, the United Kingdom for instance, the responsible organization is a private sector body similar to the FASB in the United States In other countries, such as France, the organization is a governmental body. Accounting standards prescribed by these various groups are not the same Standards differ from country to country for many reasons, including different legal systems, levels of inflation, culture, degrees of sophistication and use of capital markets, and political and economic ties with other countries These differences can cause problems for multinational corporations A company doing business in more than one country may find it difficult to comply with more than one set of accounting standards if there are important differences among the sets It has been argued that different national accounting standards impair the abil ity of companies to raise capital in international markets. In response to this problem, the International Accounting Standards Committee IASC umbrella organization formed to develop global accounting standards was formed in 1973 to develop global accounting standards The IASC in 2001 reorganized itself and created a new standard-setting body called the International Accounting Standards Board IASB objectives are to develop a single set of high-quality, understandable global accounting standards, to promote the use of those standards, and to bring about the convergence of national accounting standards and International Accounting Standards The IASC now acts as an umbrella organization similar to the Financial Accounting Foundation FAF in the United States This new global standard-setting structure is consistent with a recent FASB vision report attempting to identify an optimal standard-setting environment 19 The IASB s objectives are 1 to develop a single set of high quality, understand able global accounting standards, 2 to promote the use of those standards, and 3 to bring about the convergence of national accounting standards and international accounting standards. The International Accounting Standards Board IASB is dedicated to developing a single set of global accounting standards. The IASC issued 41 International Accounting Standards IASs The IASB endorsed these standards when it was formed in 2001 Since then, the IASB has revised many of them and has issued six standards of its own, called International Financial Reporting Standards IFRSs voluntary IASB standards Compliance with these standards is voluntary, since the IASB has no authority to enforce them However, more and more countries are basing their national accounting standards on international accounting standards 20 The International Organisation of Securities Commissions IOSCO approved a resolution permitting its members to use these standards to prepare their financial statements for cross-border offer ings and listings Beginning in 2005, all listed companies in the European Union EU must prepare their consolidated financial statements using IFRS Some 7,000 listed EU companies are affected. International Financial Reporting Standards are gaining support around the globe. In the United States, the move toward convergence of accounting standards began in earnest with the cooperation of the FASB and the IASC on the earnings per share EPS issue In 1994, the FASB and the IASC began working on projects leading toward the issuance of new standards for the computation of EPS The intent of the FASB s project was to issue an EPS standard that would be compatible with the new international standard and, at the same time, simplify U S GAAP Chapter 19 describes this standard. In 2002, the FASB and IASB signed the so-called Norwalk Agreement, formalizing their commitment to convergence of U S GAAP and IFRS Under this agreement, the boards pledged to remove existing differences between their standards and to coordinate their future standard-setting agendas so that major issues are worked on together Recent standards issued by the FASB that you will encounter in our later discussions on share-based compensation, nonmonetary exchanges, and inventory costs are recent examples of this commitment to convergence. The commitment to narrowing differences between U S GAAP and international standards has influenced recent FASB standards. Global Perspectives are included throughout the text to emphasize that our economy does not operate in isolation and to introduce you to some of the differences and similarities in accounting and reporting practices around the world In addition, your instructor may assign end-of-chapter international cases to further explore these differences and similarities. THE ROLE OF THE AUDITOR. Auditors express an opinion on the compliance of financial statements with GAAP. Fed Ex Corporation. It is the responsibility of management to apply accounting standards when communi cating with investors and creditors through financial statements Another group, auditors independent intermediaries who help ensure that management has appropriately applied GAAP in preparing the company s financial statements serves as an independent intermediary to help ensure that management has in fact appropriately applied GAAP in preparing the company s financial statements Auditors examine audit financial statements to express a professional, independent opinion The opinion reflects the auditors assessment of the statements fairness, which is determined by the extent to which they are prepared in compliance with GAAP. The report of the independent auditors for FedEx Corporation s financial statements is in Appendix B The first two paragraphs explain the scope of the audit, and the third states the auditors opinion After conducting its audit, the accounting firm Ernst In our opinion, the financial statements referred to above present fairly, , in conformity with U S generally acce pted accounting principles This is known as a clean opinion If there had been any material departures from GAAP or other problems that caused the auditors to question the fairness of the statements, the report would have been modified to inform readers. The auditor adds credibility to the financial statements, increasing the confidence of capital market participants who rely on the information Auditors, therefore, play an important role in the resource allocation process. Auditors offer credibility to financial statements. In most states, only individuals licensed as certified public accountants CPAs national organization of professional public accountants in the state can represent that the financial statements have been audited in accordance with generally accepted auditing standards Requirements to be licensed as a CPA vary from state to state, but all states specify education, testing, and experience requirements The testing requirement is to pass the Uniform CPA Examination. Certified public accountants CPAs are licensed by states to provide audit services. FINANCIAL REPORTING REFORM. The dramatic collapse of Enron in 2001 and the dismantling of the international public accounting firm of Arthur Andersen in 2002 severely shook U S capital markets The credibility of the accounting profession itself as well as of corporate America was called into question Public outrage over accounting scandals at high-profile companies like WorldCom Xerox Merck Adelphia Communications and others increased the pressure on lawmakers to pass measures that would restore credibility and investor confidence in the financial reporting process. PAUL SARBANES U S SENATOR We confront an increasing crisis of confidence with the public s trust in our markets If this continues, I think it poses a real threat to our economic health 21.Driven by these pressures, Congress acted swiftly and passed the Public Company Accounting Reform and Investor Protection ACT of 2002 commonly referred to as the Sarba nes-Oxley Act for the two congressmen who sponsored the bill The legislation is comprehensive in its inclusion of the key players in the financial reporting process The law provides for the regulation of auditors and the types of services they furnish to clients, increases accountability of corporate executives, addresses conflicts of interest for securities analysts, and provides for stiff criminal penalties for violators Graphic 1-4 outlines the key provisions of the Act. G RAPHIC 1-4 Public Company Accounting Reform and Investor Protection Act of 2002.Key Provisions of the Act. Oversight board The five-member two accountants Public Company Accounting Oversight Board has the authority to establish standards dealing with auditing, quality control, ethics, independence and other activities relating to the preparation of audit reports, or can choose to delegate these responsibilities to the AICPA Prior to the act, the AICPA set auditing standards The SEC has oversight and enforcement auth ority. Corporate executive accountability Corporate executives must personally certify the financial statements and company disclosures with severe financial penalties and the possibility of imprisonment for fraudulent misstatement. Nonaudit services The law makes it unlawful for the auditors of public companies to perform a variety of nonaudit services for audit clients Prohibited services include bookkeeping, internal audit outsourcing, appraisal or valuation services, and various other consulting services Other nonaudit services, including tax services, require pre-approval by the audit committee of the company being audited. Retention of work papers Auditors of public companies must retain all audit or review work papers for five years or face the threat of a prison term for willful violations. Auditor rotation Lead audit partners are required to rotate every five years Mandatory rotation of audit firms came under consideration. Conflicts of interest Audit firms are not allowed to audit public companies whose chief executives worked for the audit firm and participated in that company s audit during the preceding year. Hiring of auditor Audit firms are hired by the audit committee of the board of directors of the company, not by company management. Internal control Section 404 of the act requires that company management document and assess the effectiveness of all internal control processes that could affect financial reporting Company auditors express an opinion on whether management s assessment of the effectiveness of internal control is fairly stated The PCAOB s Auditing Standard No 2 also requires that the company auditors express a second opinion on whether the company has maintained effective internal control over financial reporting. The changes imposed by the legislation are dramatic in scope and pose a significant challenge for the public accounting profession At the same time, many maintain the changes were necessary to lessen the likelihood of corporate and a ccounting fraud and to restore investor confidence in the U S capital markets. WILLIAM J MCDONOUGH PCAOB CHAIRMAN This standard Auditing Standard No 2 is one of the most important and far-reaching auditing standards the board will ever adopt In the past, internal controls were merely considered by auditors now they will have to be tested and examined in detail as quoted in June 18, 2004.Section 404 is perhaps the most controversial provision of the 2002 act No one argues the importance of adequate internal controls However, the costs of implementing this section of the act can be substantial Not only are companies required to document internal controls and assess their adequacy, but their auditors, too, must provide an opinion on management s assessment The Public Company Accounting Oversight Board s PCAOB Auditing Standard No 2 added an additional requirement that auditors express a second opinion on whether the company has maintained effective internal control over financial reporting 22 We revisit Section 404 in Chapter 7 in the context of an introduction to internal controls. ROBERT HERZ FASB CHAIRMAN Under a principles-based approach, one starts with laying out the key objectives of good reporting in the subject area and then provides guidance explaining the objective and relating it to some common examples While rules are sometimes unavoidable, the intent is not to try to provide specific guidance or rules for every possible situation Rather, if in doubt, the reader is directed back to the principles from his presentation to the FEI in 2002.A MOVE AWAY FROM RULES-BASED STANDARDS. The accounting scandals at Enron and other companies also rekindled the debate over principles-based approach to standard setting stresses professional judgment, as opposed to following a list of rules or more recently termed objectives-oriented approach to standard setting stresses professional judgment, as opposed to following a list of rules versus rules-based a list of rules for choo sing the appropriate accounting treatment for a transaction accounting standards In fact, a provision of the Sarbanes-Oxley Act required the SEC to study the issue and provide a report to Congress on its findings That report, issued in July 2003, recommended that accounting standards be developed using an objectives-oriented approach 23 The FASB also issued a proposal addressing this issue 24.A principles-based, or objectives-oriented, approach to standard setting stresses professional judgment, as opposed to following a list of rules. An objectives-oriented approach to standard setting stresses using professional judgment, as opposed to following a list of rules when choosing the appropriate accounting treatment for a transaction Lease accounting provides a useful example for comparing the two approaches In Chapter 15 you will learn that a company records a long-term lease of an asset as either a capital lease or an operating lease If a leasing arrangement is in substance the purchase of an asset with the lease payments effectively serving as payments for that purchase, we should account for the transaction that way A capital lease requires that the property being leased be recorded as an asset and a liability to pay for the asset No asset or liability is recorded for an operating lease Therein lies the problem Because company managers are aware that analysts view debt as indicative of financial risk, those managers often try to avoid reporting more debt than absolutely necessary As a result, firms frequently stretch the limits of the rules to structure lease agreements so that they technically sidestep the FASB s detailed rules, principally four criteria provided in SFAS No 13, for identifying capital leases that require recording a liability. In contrast, the IASB employs an objectives-oriented approach to lease accounting in its IAS 17 In that standard, the focus is on professional judgment rather than specific rules to determine whether the leasing arrangement ef fectively transfers the risk and rewards of ownership Professional judgment is then applied to determine if the risk and rewards have been transferred. Which approach is more likely to capture the economic substance of the lease, rather than its form The FASB s criteria were designed to aid the accountant in determining whether the risk and rewards of ownership have been transferred Many would argue, though, that the result has been the opposite Rather than use the criteria to enhance judgment, management and its accountants can use the rules as an excuse to avoid using professional judgment altogether and instead focus on the rules alone Proponents of an objectives-oriented approach argue that its focus is squarely on professional judgment, there are few rules to sidestep, and we more likely will arrive at an appropriate accounting treatment Detractors, on the other hand, argue that the absence of detailed rules opens the door to even more abuse Even in the absence of intentional misus e, reliance on professional judgment could result in different interpretations for similar transactions, raising concerns about comparability. The FASB is actively considering whether to move toward objectives-oriented standard setting That the IASB primarily follows an objectives-oriented approach, coupled with the FASB s recent moves toward convergence of U S and international standards, hints at a leaning in that direction Opposition, though, is ardent The debate has by no means ended.7 The terms standards and principles sometimes are used interchangeably 8 Reporting requirements for SEC registrants include Form 10-K, the annual report form, and Form 10-Q, the report that must be filed for the first three quarters of each fiscal year 9 In 2000, the SEC issued regulation FD Fair Disclosure which redefined how companies interact with analysts and the public in disclosing material information Prior to regulation FD, companies often disclosed important information to a select group of an alysts before disseminating the information to the general public Now, this type of selective disclosure is prohibited The initial disclosure of market-sensitive information must be made available to the general public 10 The FAF s primary sources of funding are contributions and the sales of the FASB s publications The FAF is governed by trustees, the majority of whom are appointed from the membership of eight sponsoring organizations These organizations represent important constituencies involved with the financial reporting process For example, one of the founding organizations is the Association of Investment Management and Research formerly known as the Financial Analysts Federation which represents financial information users, and another is the Financial Executives International which represents financial information preparers The FAF also raises funds to support the activities of the Government Accounting Standards Board GASB 11 The FASB organization also includes the Financial Accounting Standards Advisory Council FASAC The major responsibility of the FASAC is to advise the FASB on the priorities of its projects, including the suitability of new projects that might be added to its agenda 12 For more information, go to the FASB s Internet site at 13 The hierarchy presented here is based on an Exposure Draft entitled The Hierarchy of Generally Accepted Accounting Principles, Proposed Statement of Financial Accounting Standards, Norwalk, Conn FASB , April 28, 2005 The Standard was expected to be effective for fiscal periods beginning after September 15, 2005 The FASB s Concept Statements are not included in the hierarchy They do not constitute GAAP, but provide a structure for evaluating current standards and for issuing new standards 14 Rod Coddington, USA Snapshots, Hewitt Associates Survey of 992 Large Employers, USA Today November 8, 1991 15 A change in an accounting standard does not directly affect the cash flow of a company For example, changing from th e cash to the accrual method of accounting for postretirement health care benefits does not directly change the amounts and timing of the cash payments the company has to make to retirees However, real cash flow effects could result for a number of reasons As a result of the change in a standard, 1 a company could alter the way it operates, 2 income tax payments could change, or 3 the new standard could cause the violation of a debt agreement thus increasing financing costs 16 Carl Landegger, reprinted in Accounting Today October 23, 1989 , p 1 17 Jonathan Weil, FASB Backs Down on Goodwill-Accounting Rules, The Wall Street Journal December 7, 2000 18 Business Combinations, Statement of Financial Accounting Standards No 141 Norwalk, Conn FASB, 2001 , and Goodwill and Other Intangible Assets, Statement of Financial Accounting Standards No 142 Norwalk, Conn FASB, 2001 19 International Accounting Standard Setting A Vision for the Future Norwalk, Conn FASB, 1998 20 Helen Gernon and Gary Mee k, Accounting An International Perspective New York The McGraw-Hill Companies, 2001 21 James Kuhnhenn, Bush Vows to Punish Corporate Lawbreakers, San Jose Mercury News July 9, 2002 , p 8A 22 An Audit of Internal Control over Financial Reporting Performed in Conjunction with an Audit of Financial Statements, Auditing Standard No 2 Washington, D C PCAOB, 2004 23 Study Pursuant to Section 108 d of the Sarbanes-Oxley Act of 2002 on the Adoption by the United States Financial Reporting System of a Principles-Based Accounting System, Securities and Exchange Commission July 2003 24 Principles-Based Approach to U S Standard Setting, A Financial Accounting Standards Board Proposal Norwalk, Conn FASB, 2002.
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