AN ACCOUNTANT'S OPTION PRIMER: PUTS AND CALLS DEMYSTIFIED.

ACCOUNTING; ACCOUNTING standards; ACCOUNTANTS; OPTIONS (Finance); HEDGING (Finance); DERIVATIVE securities; INVESTMENTS; STOCK options; FINANCIAL Accounting Standards Board

The article looks into the accounting proposals for the newest hedging instruments in the U.S. It is noted that the increased use of options has prompted the American Institute of CPA accounting standards executive committee to send an issue paper on accounting for options to the Financial Accounting Standards Board, encouraging it to add a project on options to its agenda. Thus, options appear on the FASB's agenda as part of a larger project on financial instruments. Two primary issues need to be resolved to account for options. These include carrying amounts and hedge accounting. The article suggests the need for accountants to understand options well enough to determine their effects on risks faced by clients. They also need comprehensive guidance on how to account for them. INSETS: SPEAKING OF OPTIONS;WRITTEN OPTIONS;THE OPTION PREMIUM: TIME VALUE VERSUS INTRINSIC VALUE.