| Abstract: | All top‐50 and more than 80% of the top‐500 Australian listed companies now reward their executives with stock options (ESOs) of one kind or another.1 We address the question: “Which method of accounting for ESOs — current practice, the US FASB's recommended practice or the AASB's preferred position — most closely reflects investors' pricing decisions?” We answer the question using models that relate a company's stock price to its earnings and book value of equity calculated according to these three choices of accounting treatment. |
