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April 2015 » Measuring the Economic Promise...
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Arianna Pinello, PhD, CPA, CIA, and Adrian Valencia, PhD, CPA, and Ara G. Volkan, PhD, CPA
On June 6, 2014, the CPA Letter Daily reported that, with convergence nearly complete, FASB will turn its focus to the simplification of accounting standards. In that vein, this article introduces a theoretical model of measuring stock options expense (SOE): the economic promise (EP) model. In the November 2013 CPA Journal, John E. McEnroe, Stanley C. Martens, and Ning Du argued that the market value of a company's stock must be used to accurately measure and report SOE ("Accounting for Employee Stock Options: Examining Another Option," pp. 10-13). Although FASB contends that the market value of a company's stock should not be used in determining its equity and that changes in value should not be recognized in earnings (Joanne M. Flood, Wiley GAAP, 2014 ed., p. 712), the authors of this article agree with McEnroe, Martens, and Du. The ensuing discussion aims to present theoretical and empirical evidence in support of their proposals.
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