Valuing options: Are you up for the challenge?
Abstract: Employee stock options (ESOs) can be an effective way for companies to attract and retain key employees and are popular among startups and technology firms, which tend to be cash-poor but offer significant growth potential. But accounting for ESOs became more complicated when the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 123(R), which eliminated the intrinsic method of reporting ESOs. This article explains that now companies must use the fair value method, requiring ESO issuers to enlist valuation expertise.