The texts go through stock option accounting under 123® at length. But under the “shenanigans” section (reading 27) the CFAI text indicates that most firms still operate under APB 25, which uses the intrisic method. This has implications for cash flow reporting as 123® reports the excess tax benefits of stock options as CFF, but the shenanigans section (must be for firms not using 123® ) says CFO can be manipulated using the cash flow from excess stock option tax benefits. ?!?! Do you think the questions on the exam will lay out which rules are being used? Should we use one or the other as a default?
I know the excess tax benefit as being a CFF item.
That is what 123® says, but look at p. 287 of schweser, or more importantly, p. 219 in CFAI text.
Maybe not presented on the exam in the clearest sense of “Hey, these guys use ABP 25 still” etc. What I’d be looking out for is the type of firm (public versus private) and when the financials end. 123® was effective for fiscal years beginning June 15, 2005 and private for December 15, 2005. Imagine a scenario where two analysts are talking about the changes to financials, pre and post the changes. So, to muddy the waters you may very well have to answer questions about the impact of APB 25 versus 123®. I wouldn’t assume anything. Notice that in Pension Accounting that we also have to deals with two different sets of rules - one that provides for actuarial/deferred items etc., and one that calls for market value to show the economic impact.
I know nothing about stock options…I keep reading it and I don’t understand it. Is there a few simple rules anybody knows I can use as rules with stock options accounting.
deep2002 Wrote: ------------------------------------------------------- > I know nothing about stock options…I keep > reading it and I don’t understand it. Is there a > few simple rules anybody knows I can use as rules > with stock options accounting. Dont read from the CFAI texts , if thats what you are doing. IMO this is one of the few readings where schweser does a far better job than CFAI texts. Schweser makes it really easy with a good warm up before diving into the actual LOS. Its all about how you estimate the value of stock options over its life using an appropriate option pricing model and then expensing for it on the financial statements (123R) as opposed to expensing it on the price its actually paid out at(APB 25) (which is mostly less than the actual stock price and hence nothing really expensed)