Review the discussion of the stock option fraud at Brocade Communications in the chapter.
a. According to the accounting standards, is backdating stock options wrong?
b. What is the auditors' concern when the company backdates stock options?
c. What assertions are important in auditing backdated stock options? What evidence should the auditors gather to determine that the client has correctly recorded backdated stock options?
d. Barnes and Noble often used backdating to issue stock options to senior man agers. According to a report issued by the company, its managers believed that it was appropriate to select a date for the stock option grant if the date was reasonably close to the approval date. Is this correct? What does the company's statement indicate about its knowledge of accounting standards?
e. The SEC at one time investigated 140 companies for backdated stock options, so the practice appears to be quite common. Why did so many auditors appar ently allow this fraudulent practice to continue?