The author argues that the accounting profession should investigate further the possibilities of recording compensation expense at the date of grant differently than under present generally accepted accounting principles. The economics and finance literature provides evidence that option contracts can be valued, although an exact evaluation formula still is not devised. However, the literature is remarkably consistent with respect to the variables to consider and the range of values that are appropriate for a given set of conditions. Although an exact figure probably never can be known for any option, it is reasonable to assume that the value for an option can be approximated with a high degree of confidence. In the case of nonqualified stock options, it would seem that the models provide a good answer to our valuation problems. On the other hand, qualified stock option plans involve more variables, and it appears that additional research is needed to model their restrictive components.

One of the responsibilities of a certified public accountant, CPA is to keep secret the confidential disclosures made to him by his client in the course of his professional engagement. The AICPA has recognized the need for this confidential relationship in Article 1.03 of the Code of Professional Ethics, which states: A member or associate shall not violate the confidential relationship between himself and his client. To carry out his mission, the CPA must have access to all the information of a company relating to the financial statements, even though some of it might be highly confidential and potentially valuable to competitors. That complete information is made available to the CPA is a tribute to his integrity and professional stature. If a confidential bond did not exist between auditor and client, the auditor-client relationship would not last, since disclosure by the CPA of trade secrets, secret processes, lists of customers or plans of organizations and the like would create such distrust and apprehension in the relationship that the client would be hesitant to let the auditor examine any of the documents for fear of later disclosure. However, the disclosure by the auditor of confidential information learned in the course of his professional engagement in a court of law becomes a much more difficult question.

Intangible assets, R&D, Advertising expenses, Amortization

Smith and Zimmerman [1976] suggested valuing employee stock options at the difference between the market price of the stock at the grant date and the present value of the exercise price of a simple call option on the stock discounted from the expiration date.' They also discussed modifications to this value to take account of the impact of dividends, differing income tax rates, and the problem of differential underdiversification across option holders. The purpose of this note is to extend the minimum value method by incorporating (a) random exercise prices which depend on stock prices, (b) fixed exercise price changes, and (c) ceilings on the amount of stock appreciation permitted in these awards. The minimum values which incorporate the first two extensions are obtained from the option models of Fischer [1978] and Merton [1973]. We derive the minimum value for the third extension from probability theory results for first-passage times for stochastic processes.

Convertible Debentures, Prediction model, APB Opinion No. 15, Share dilution

Reviews the book "Accounting for Portfolio Investments: A Research Study," by

Reviews the book "Handbook of Accounting and Auditing," edited by John C. Burton, Russell E. Palmer and Robert S. Kay.

The article offers tips for providing concise and useful ways of explaining to students the evolution of accounting changes. In the retroactive way of teaching students the evolution of accounting changes, statements presented for periods prior to the accounting change are adjusted to appear as they would have if the new accounting method had been in effect at the time they were prepared. In using the prospective way, the accounting change impacts the statement for the period wherein the accounting change is made and statements for subsequent periods are not adjusted. The lump-sum adjusted way of teaching the evolution of accounting change is also explained.