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The set of papers dealing with employee stock options alludes to the decades-long debate on how these transactions should be reported to shareholders.  But, first, let’s understand all of the information reported to the shareholders of the firm (the market) along the way.  On the following pages are excerpts from both a Form 4 and a proxy statement (the report sent to shareholders in advance of the annual shareholders’ meeting).  They both show key information about stock option grants to Larry Ellison, CEO of Oracle.  
1) a)    What arguments would support accounting for the stock option transactions by creating  an intangible asset on the balance sheet, as the FASB originally proposed 20+ years ago? b) What specific information from the Form 4 and the proxy statement would help accountants to properly measure and account for the intangible asset over time?  
2) a)    What arguments support accounting for the stock option transaction under its current GAAP treatment:  reporting compensation expense as incurred, based on the grant date fair value, over the service (vesting) period, but not capitalizing an asset? b) What specific information from the Form 4 and the proxy statement would accountants use for this accounting treatment?  
3) a)    As accountants, we make adjustments in the stock option compensation measurement for certain items, using management’s judgment.  According to the Codification, what  are the items managements must adjust for, based on their judgments, for the  transaction? b)   Why must management make these adjustments to measured compensation expense   and option-based equity?  
4) Are investors and other users better served by:  
(i) a more complex accounting treatment using more of the grant information and more management judgment, or  (ii) a simple accounting treatment using less of the grant information, leaving the interpretation of the rest of the disclosed information to them?



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