The nine-page practice alert, Matters Relating to Timing and Accounting for Options Grants (PDF), was prompted by recent reports and disclosures about issuer practices related to the granting of stock options, including the "backdating" of such grants.

In a statement Friday, the board said these reports and disclosures indicate that some issuers' actual practices in granting options might not have been consistent with the manner in which these transactions were initially recorded and disclosed. Some issuers have announced restatements of previously issued financial statements as a result of these practices. In addition, some of these practices could result in legal and other contingencies that may require recognition of additional expense or disclosure in financial statements.

The alert advises auditors that these practices may have implications for audits of financial statements or of internal control over financial reporting and discusses factors that may be relevant in assessing the risks related to these matters. The alert reminds auditors to "be mindful" of applicable financial accounting standards, including SFAS No. 123 (Accounting for Stock-Based Compensation).

PCAOB audit practice alerts are issued by the board's staff to "highlight new, emerging, or otherwise noteworthy circumstances that may affect how auditors conduct audits under the existing requirements of PCAOB standards and relevant laws." They will be posted on the board's Web site, www.pcaobus.org, as well as transmitted to registered public accounting firms via email when possible.

See also: IRS Will Probe Stock Option Awards