The independent board that oversees the accounting industry has issued guidelines for auditing the value of stock options given to executives and employees, now that companies are required to count the options against profits.

The Public Company Accounting Oversight Board announced the new guidelines on Tuesday. They advise accountants to be wary of possible problems in how companies whose books they audit determine the value of options as compensation.

Auditors should get from the companies an understanding of how they arrived at the estimated value of the options and assess the risk that the value was misstated, the guidelines say.

There may be a risk of fraudulent accounting, they say, when changes were made to the customary patterns of exercising options. An example would be a case in which the company calculates the value on the basis of anticipating that the options will be exercised after five years, when the average for the company is seven years.

Auditors also should determine whether the price model chosen for valuing options is applied in a way that is consistent with accounting rules.

Rules that took effect early last year require public companies to record employee stock options as an expense against the bottom line, a mandate that could reduce companies'reported earnings and had been fiercely opposed by major high-tech companies.

The guidelines from the accounting board come amid a growing scandal over suspicious timing of stock options awards to top executives at a number of companies. At least 135 public companies have disclosed Securities and Exchange Commission, Justice Department or internal investigations of their option grants, according to an Associated Press review.

This week William McGuire, the chairman and CEO of UnitedHealth Group Inc., the nation's second-largest health insurer, became the most prominent corporate executive to lose his job in the controversy. At least 30 senior executives or directors at 16 companies with stock option problems have resigned or been fired.

At issue in many of the investigations is a practice known as backdating. Stock options are issued retroactively to coincide with low points in a company's share price, potentially fattening profits for options recipients when they sell their shares at higher market prices.

Backdating options can be legal as long as the practice is disclosed properly to investors and approved by the company's board. In some cases, however, the practice can run afoul of federal accounting and tax laws.

The accounting board in July issued a special"audit practice alert"warning auditors to watch for problems in companies'accounting for stock option grants. Accountants may have to review their earlier audits if there are indications that options were backdated, it said.

On the Net:

Public Company Accounting Oversight Board:http://www.pcaobus.org

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