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Basic Question 3 of 8
Which of the following statements relating to stock option costs is false?
B. Companies have the choice of recording employee stock option expense in current period income or footnoting their proforma effects.
C. Use of the fair value method results in recognition of stock option expense in current income.
D. Under current accounting standards, companies are required to disclose information about the number of outstanding stock options and the assumptions used to compute their value in the computation of proforma income.
A. Under the intrinsic value method, compensation expense is the amortized portion of the value of the options granted and is reported as a current period expense.
B. Companies have the choice of recording employee stock option expense in current period income or footnoting their proforma effects.
C. Use of the fair value method results in recognition of stock option expense in current income.
D. Under current accounting standards, companies are required to disclose information about the number of outstanding stock options and the assumptions used to compute their value in the computation of proforma income.
User Contributed Comments 1
| User | Comment |
|---|---|
| quanttrader | via intrinsic value method, if option is granted at current mkt price (iv = 0), then it will not be exercised and therefore should not be reported as compensation expense; rather it should be disclosed in the footnote the expense that would occur had the fair valuation method been used instead |
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Learning Outcome Statements
identify financial reporting choices and biases that affect the quality and comparability of companies' financial statements and explain how such biases may affect financial decisions;
evaluate the quality of a company's financial data and recommend appropriate adjustments to improve quality and comparability with similar companies, including adjustments for differences in accounting standards, methods, and assumptions;
evaluate how a given change in accounting standards, methods, or assumptions affects financial statements and ratios;
analyze and interpret how balance sheet modifications, earnings normalization, and cash flow statement related modifications affect a company's financial statements, financial ratios, and overall financial condition.
CFA® 2025 Level II Curriculum, Volume 2, Module 15.