Backdating the

However, if the issuer granted an option with an exercise price below the market price of the shares on the measurement date, the spread was a compensation-related expense that had to be recorded.

Therefore, as long as a company granted options to employees with an exercise price equal to the fair market value on the measurement date, it could compensate its executives with options without recognising a compensation expense that would negatively impact its net income and profits.

Although these developments have occurred since 2002, the prevalence of backdating was not discovered until 2005.

In that year, Professor Erik Lie at the University of Iowa published a study on the University website which found an alarming propensity for option grants to occur when company share prices were unusually low relative to their historical trading levels.

What you can’t do Clearly, you can’t backdate a document so that is appears to have been signed on, say, 31 December, when in fact it was signed on 15 June.This would be fraud, and would be likely to expose those involved to a number of different criminal offences.Documenting what happened in the past What you can do is document a transaction which has actually happened in the past which had not been formalised.Sometimes a group of companies which has reorganised itself will want to backdate some of those changes, perhaps to backdate an intra-group transfer of business so that it coincides with the previous year end.Here are some guidelines as to what may be possible from a legal perspective.

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From a legal perspective, the business sale agreement could potentially be signed in June, and the agreement may specify an immediate completion date (i.e.

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