Discussion

Salvador Corporation made an investment in Letter.com, Inc., in exchange for 100,000 options to purchase Letter.comâs stock at $20 per share. Since the stock options are not marketable, Salvadorâs management has this derivative valued by a security appraiser. The appraiser uses an option-pricing model to determine the fair value of the derivative for the financial statements. Describe how you would audit the valuation of the stock options.