Describe about backdating, Financial Accounting

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Q. Describe about Backdating?

i) Exercise price is based on a lower share price prior to option grant date. Practice of marking a document with a date that precedes actual date. 

ii) Example - Option is approved by board permits the stock to be priced based upon lowest price in the past 30 days- permits options to be in money when issued. Options are supposed to be issued at option price which is neutral at time of issuance. 

iii) Mayn't be illegal if 

(1) Clearly communicated to shareholders 

(2) No documents forged

(3) Reflected in earnings of the company

(a) If under A PB 25 -granting of in the money options resulted in recognition of compensation expense in earnings. If options were neutral or out of the money then. No compensation would be recognized

(b) If under 123R expense is based upon fair value at grant date and compensation is recognized it earnings statement


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