SEC Staff Addresses Possible Restatements due to Backdating of Stock Options

Timely guidance from the Office of the Chief Accountant sheds light on the accounting issues that can arise when investigating past practices.

Introduction

As one of his first official acts, SEC Chief Accountant Conrad Hewitt took aim at the accounting issues involved in the backdating of stock options. In a letter addressed to the Committee on Corporate Reporting of Financial Executives International and the AICPA's Center for Public Company Audit Firms, Hewitt explained the staff's views on the accounting consequences of various stock option granting practices.

The guidance covers a variety of situations. Examples:

• What if a company finds options were dated prior to the actual award?
• What if the individual award recipients were not all known at the time of the award?
• What if a company can't find its documentation for past awards, or the documentation is incomplete?
• What if a company discovers evidence that calls into question the validity of some of its past awards?

These situations can require considerable judgment. Early consultations can help. If your company finds any indication that past stock option awards may have been backdated, the most prudent plan of action is to immediately consult with your legal counsel and your independent accountant.

Continue Reading - Assessing Errors in Accounting for Options

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