Valley Corporation established a stock option plan for its officers and key employees this year. Because the options granted have a higher option price than the stock’s current market price, the company has not recognized any cost for the options in the financial statements. However, a note to the financial statements includes all required disclosures.
a. Do you believe that Valley’s management has appropriately accounted for the stock option plan? Explain your answer.
b. What responsibility do the auditors have for the information in the notes to the financial statements?