Infosys Technologies: Expensing Stock Options

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Case Details:

Case Code : BSTA027
Case Length : 17 Pages
Period : 1974 - 2004
Organization : Infosys
Pub Date : 2004
Teaching Note :Not Available
Countries : Global
Industry : Information Technology

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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If options aren't a form of compensation, what are they? If compensation isn't an expense, what is it? And if expenses shouldn't go into the calculation of earnings, where should they go?

- Warren Buffet1

Infosys Technologies (Infosys), one of India's best-known computer software companies, provided consulting and IT services to clients globally. With over 19,000 employees worldwide, Infosys was the second largest exporter of software from India, after Tata Consultancy Services (TCS). Based in India's "Silicon City" of Bangalore, Infosys offered a range of customized software services including development, maintenance, reengineering, and consulting. The company had also set up several dedicated offshore software development centers for large clients. Infosys was widely considered to be one of India's most respected and admired companies. The company was well known for its excellent governance and financial reporting practices.

Infosys had been one of the first companies in India to issue stock options (ESOP) to its employees. In recent times, accounting for stock options had become a controversial subject in the US. With its ADRs listed on the NASDAQ, Infosys was not insulated from the debate in the US.

By 2003, the debate on expensing stock options in the income statements had become intense. Analysts speculated that the main regulatory body in the US, Securities and Exchange Commission (SEC) might make it mandatory for tech companies to expense stock options. In India, the Securities & Exchange Board of India (SEBI) had also issued accounting guidelines for stock options...

Excerpts >>

1] "Accounting for Stock-based Compensation: The FASB's Proposal", The CPA Journal, October 1993.


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