A Troubling Requirement

7 Pages Posted: 28 May 2004

See all articles by Kevin A. Hassett

Kevin A. Hassett

American Enterprise Institute (AEI)

Peter J. Wallison

American Enterprise Institute (AEI)

Abstract

Since the Enron collapse in mid-2002, the Financial Accounting Standards Board (FASB) has been pressed to require that companies include the hypothetical expense of their employee stock options in their financial statements. Many lawmakers and commentators on financial matters have argued that employee stock options are a form of compensation, and the failure to show the cost of those instruments results in misleading financial reports. FASB has no idea how companies might be able to establish the fair value of employee stock options. The responsible course would be for the Board to wait until it or some other entity has created a model for pricing employee stock options that is generally recognized as faithfully representing what it purports to represent. Until then, FASB should stick to its current requirement that disclosure occur in the footnotes to the financial statements rather than in the computation of net income.

Keywords: Enron, Financial Accouting Standards Board, FASB, stock options, disclosure, Enron, Generally Accepted Accounting Practices, GAAP, fraud, financial markets, accounting practices

JEL Classification: G30, G32, G38, M41, J33

Suggested Citation

Hassett, Kevin A. and Wallison, Peter J., A Troubling Requirement. Available at SSRN: https://ssrn.com/abstract=551591

Kevin A. Hassett (Contact Author)

American Enterprise Institute (AEI) ( email )

1150 17th Street, N.W.
Washington, DC 20036
United States
202.862.7157 (Phone)
202.862.7177 (Fax)

Peter J. Wallison

American Enterprise Institute (AEI) ( email )

1789 Massachusetts Ave, NW
Washington, DC 20036
United States
202-862-5864 (Phone)
202-862-4875 (Fax)

HOME PAGE: http://www.aei.org/scholars/wallison.htm

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