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The Sarbanese-Oxley Act mandated that stock options be filed within 2 days after they are granted (Find Law, 2002), mitigating the backdating problem.Before the Sarbanese-Oxley Act came into effect, option grants were reported using Form 5 which primary use is for the disclosure of "the transactions and holdings of directors, officers, and beneficial owners of registered companies" (Securities and Exchange Commission, n.d.).All the wars and tragedies that occurred in this century were as a result of one thing, indifference... Advertisement Advertisement has been the backbone of survival in the competitive markets.Success of the commercials depends on the approaches used.Most companies continue with the intrinsic value based method of accounting (Ellsworth et al., 2006).Under the intrinsic value based method, "compensation cost is the excess, if any, of the quoted market price of the stock at grant date or other measurement date over the amount an employee must pay to acquire the stock" (Financial Accounting Standards Board, 1995).
Backdating occurs when companies, whether intentionally or unintentionally, choose to use the price of the underlying stock on the grant date as the basis for measuring the compensation cost.Furthermore, the form is required to be filed only "on or before the 45th day after the end of the issuer's fiscal year" (Securities and Exchange Commission, n.d.).This essentially means that if the stock options were granted early in the fiscal year, investors would not come to know of them until almost 1 year later, giving more leeway for insiders to manipulate the date on which the exercise price was established.Most of the 63 companies involved in stock option backdating "relate to a roughly six-year period prior to the Sarbanes-Oxley legislation" (Grant and Nuttall, 2006). Such company actions and policies include sloppy documentation, delays in the grant approval process, and the wrong interpretation of APB Opinion No.25 Accounting for Stock Issued to Employees (Ellsworth et al., 2006). 123 Accounting for Stock Issued to Employees prescribes that the intrinsic value or fair value based method of accounting be used for the valuation of stock options (Financial Accounting Standards Board, 1995).