The Public Company Accounting Oversight 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."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 both 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 alert notes 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 with two days -- appears to have curtailed the abuse of option grants, there's still no guarantees.
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