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Thus, if backdating explains the stock price pattern around option grants, the price pattern should diminish following the new regulation.
Indeed, we found that the stock price pattern is much weaker since the new reporting regulation took effect.
Remy Welling, a senior auditor at the IRS, was asked to sign the deal in late 2002.
Instead, she decided to risk criminal prosecution by blowing the whistle.
By the end of the 1990s, the aggregate price pattern had become so pronounced that I thought there was more to the story than just grants being timed before corporate insiders predicted stock prices to increase.
However, under the new FAS 123R, the expense is based on the fair market value on the grant date, such that even at-the-money options have to be expensed.) Because backdating is typically not reflected properly in earnings, some companies that have recently admitted to backdating of options have restated earnings for past years. The exercise price affects the basis that is used for estimating both the company's compensation expense for tax purposes and any capital gain for the option recipient.
Thus, an artificially low exercise price might alter the tax payments for both the company and the option recipient.
There is also some relatively early anecdotal evidence of backdating.
A particularly interesting example is that of Micrel Inc.