The Public Company Accounting Oversight Board recently issued its inaugural audit practice alert, warning auditors to be on the watch for problems with the timing of, and the accounting for, stock-option grants."Auditors planning or performing an audit should be alert to the risk that the issuer may not have properly accounted for stock-option grants and ... may have materially misstated its financial statements," the alert said, alluding to recent investigations by the Securities and Exchange Commission and the Internal Revenue Service into whether companies routinely backdate, spring-load or otherwise manipulate stock-options grants to top executives.
The board's alert noted that while the implementation of Sarbanes-Oxley and a new rule from the SEC requiring companies to report the issuance of a stock-option grant within two days appear to have curtailed the abuse of option grants, there are still no guarantees.
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