Backdating Options: Frequently Asked Accounting Questions
21 November 2006
By Dr. Thomas Porter
Many companies that granted stock options to employees have recently been accused of "backdating." This refers to a practice of looking back in time and choosing a date on which a company's stock price was at or near its low over a certain time period (the past quarter, for example) and "pretending" that at-the-money options were granted on that date. In this document, NERA Vice President and Certified Public Accountant Dr. Thomas Porter answers some key accounting questions surrounding this practice. Dr. Porter discusses the accounting implications of granting in-the-money options, the accounting consequences and tax effects of backdating, and recently implemented SEC requirements that may limit the practice of backdating in the future.
