Backdating accounting

21 Mar

While not necessarily illegal, some instances may result in tax penalties, accusations of securities fraud for failure to disclose and financial restatements, respectively.Concerned about alleged misdeeds and an adverse impact on stock price, pension funds are lining up to bring suit.Executive stock options continue to grab headlines.In late 2004, after a parade of protests, the Financial Accounting Standards Board (FASB) issued the "Summary of Statement No. Intending to promote transparency, FASB's rule requires public companies "to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award" and to recognize the cost "over the period during which an employee is required to provide service in exchange for the award-the requisite service period (usually the vesting period)." Following suit, on July 26, 2006, the U. Securities and Exchange Commission (SEC) announced news about additional (and arguably more comprehensive) disclosure rules for all sorts of executive compensation vehicles, including stock options.She's saying that shareholders will naively think that the options were really granted on January 2, leaving them suspicious of springloading.

However, even in the absence of case-specific information, a discussion about the valuation of executive stock options is, nevertheless, worthwhile. That's why it will continue to resurface as the topic du jour in court, regulatory proceedings, auditors' roundtables and board meetings everywhere.” One important aspect of option valuation is volatility, a measure of future price uncertainty.Sure the accounting rules are arcane and most people don't know them.But if someone asks you to write down a date from a month ago on a legal document, rather than today's date, doesn't it give you pause?If someone presents you with a spreadsheet of the last month's stock prices and asks you to pick the date on which you want to pretend that you granted, or were granted, several million options, might that not at least spur further inquiry?When then-general counsel Nancy Heinen emailed Apple (AAPL) CEO Steve Jobs such a spreadsheet on January 30, 2001, she noted that it was a bad idea to choose January 2 as the grant date--even though that was the day the stock had been at its lowest--if they wanted "to avoid any perception that the Board was acting in appropriately [sic] for insiders prior to Macworld announcements." (They ultimately chose one of the next-best dates from after Macworld.) Now isn't it obvious to everyone on that email that shareholders are being misled?