The Public Company Accounting Oversight Board has issued staff questions and answers about auditing the value of stock options granted to employees.The guidance provides direction for auditing a company’s estimation of the fair value of stock options granted to employees under its revised statement on share-based payments, standard, No. 123. The standard became applicable for financial statements of companies with fiscal years ending on or after June 15, 2006.
The questions and answers are limited to addressing auditing the fair value measurements associated with determining compensation cost. The series highlights risk factors that auditors should be aware of and addresses the auditor’s consideration of the process for developing a fair value estimate, significant assumptions used in options pricing models, and the role of specialists in fair value measurements.
In July, the board issued its first-ever audit practice alert, warning auditors to be on the watch for problems in the timing and accounting of stock-option grants, including the backdating of grants.
The questions and answers are available at www.pcaob.org/Standards/Staff_Questions_and_Answers/2006/Stock_Options.pdf.
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