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Continued
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Accountants answer
Use expected exercise date in Black/Scholes formula Report ESO expense as supplementary information
SFAS 123, 1995
Continued
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Continued
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Continued
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Continued
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Guay (1999)
Limit firm risk using derivatives
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Investors realize this increased security and will lend at lower interest rate
Arguments for conservatism conflict with standard setters moves to current value
Copyright 2009 by Pearson Education Canada 8 - 23
Conclusions
PAT helps us understand why accounting policies have economic consequences, without conflicting with efficient securities markets theory PAT supported by a large body of empirical evidence PAT supports a corporate governance (stewardship) role for financial reporting PAT supports an efficient contracting role for conservative financial reporting
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