Option backdating scandals: how management accountants can help: backdating of employee stock options can have a significant negative effect on a public company.I am moved to put this issue to you, as it is in some ways related to your comments in MSCD and elsewhere on back-dating contracts, which I agree is a no-no, especially for public companies, or making contracts “retroactively effective” in similar ways.
Awarding employees with stock options those are dated prior to the actual grant date.
The date chosen could be one when the company’s stock was at a low, so the options can be in-the-money at the time of granting itself.
The practice is illegal if it is not followed by proper disclosure and related expenses are not recorded in financial statements.
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I personally saw nothing wrong with creating an amendment that revived the dead contract I agree with Vance.
If a contract terminates because it has reached the end of its term and the parties subsequently decide to apply the defibrillator and revive that arrangement, I’d favor—as always—having the documentation reflect what actually happened.Suggesting instead that on or before the end of the original term the parties had extended the term would give an inaccurate account of the circumstances.I have seen cases like this where the parties sign a document that is either styled a “revival” or “reinstatement” agreement, or just an amendment to the old one, that purports to bring the expired contract back into effect.There may have been post-termination obligations under the old one, or special provisions for transactions that happened between the date the old one lapsed and the new one (or the amendment) takes effect, that the new document handles.In one such recent instance, the counter-party questioned whether it was possible to do this, and proffered instead a recital that the old agreement had continued with a new expiration date.This struck me as wrong for the reasons you raised in the retroactivity or back-dating situations.