For example, if parties clearly reach an agreement on Dec.31, 2009, but do not execute a contract formalizing their agreement until Jan.3, 2010, the contract may be dated as of Dec. This is simply the accurate memorialization of a past event, something that is essential to legal practice.
In 1972, a new revision (APB 25) in accounting rules resulted in the ability of any company to avoid having to report executive incomes as an expense to their shareholders if the income resulted from an issuance of “at the money” stock options.
In essence, the revision enabled companies to increase executive compensation without informing their shareholders if the compensation was in the form of stock options contracts that would only become valuable if the underlying stock price were to increase at a later time.
Additionally, companies can use backdating to produce greater executive incomes without having to report higher expenses to their shareholders, which can lower company earnings and/or cause the company to fall short of earnings predictions and public expectations.
Corporations, however, have defended the practice of stock option backdating with their legal right to issue options that are already in the money as they see fit, as well as the frequent occurrence in which a lengthy approval process is required.
And to say it's up to the bean-counters to catch this situation is silly, because the whole reason you're using phony dates is so that the bean-counters won't know what you really did.