Abstract
In 1995, after 12 years of deliberation, FASB issued Financial Accounting Standard (SFAS) 123, encouraging, but not requiring, companies to adopt a fair value pricing model to measure and recognize the option value at the grant date and record a portion of this amount as annual expense over the vesting period of the option. The current political and economic environment has reopened the question of accounting for stock options. Unlike in 1995, when FASB last tackled the issue, the public mood favors expensing stock option costs. The major issues left to be decided concern the selection of a valuation model, the revaluation or marking options to market, the frequency of revaluation (i.e., annually versus quarterly), and the period of revaluation and expensing. A simple, reliable, and understandable valuation model, such as that used for stock appreciation rights, should be adopted to determine quarterly option expense until the option is exercised of expires.