Effect of backdating

Ashley Fife explores backdating and the 'effect date', including backdating appropriateness, problems with backdating, and recommended practice.

Sometimes the law governing the event is ambiguous, and other times the facts surrounding the event are unclear.

Clearly, the ideal position is to put in place the relevant intercompany agreement in advance, as with any commercial arrangement.

The options available here depends on the proposed terms of the agreement, and whether it can be said that the relevant arrangements are already in operation.

The agreements could specify, among other things, that revenue and risk would be apportioned by reference to the historic effective date, with adjusting payments being made accordingly.

This type of arrangement would not bind third parties, but it may be effective from an accounting and tax perspective depending on the time which has elapsed since the intended historic effective date.

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Financial economists held that agents or managers are effort-adverse (Jensen and Meckling 1976; Jensen and Murphy 1990), and rewards, such as stock options tied to performance, are required to provide executives the incentive to supply effort, but more specifically, to supply effort which is consistent with the interest of stockholders.

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