IFRS2, FRS20 and FAS123

International Financial Reporting Standard 2 (IFRS 2), covers virtually all transactions to purchase products or services that involve either issuing shares (or options) or making payments based on the market price of shares. A similar UK standard, Financial Reporting Standard 20 (FRS20) applies to non-listed UK companies and US standard, Financial Accounting Standard 123 (FAS123), applies for US companies.

For the majority of companies the practical consequence of IFRS2/FRS20/FAS123 will be a requirement to report on the cost of employee share option plans, whether these are executive schemes such as Long Term Incentive Plans (LTIPs) involving complicated performance measures or relatively straightforward Save as You Earn (SAYE) plans open to all employees.

In simple terms, these accounting standards require companies to account for share options from the day they are granted, with the cost being recognised over the period to vesting. Calculating the fair value of an option can require complex stochastic techniques such as Monte Carlo models, although in some cases it is possible to use simpler methods such as the Black Scholes formula or a binomial model. The method to be used is mainly affected by the type of performance conditions attaching to the option.

How we can help

We offer a full IFRS2/FRS20 compliance service from assessment of fair values to assistance with the detailed disclosure requirements.We have versions of all 3 key valuation models so we can provide a cost effective solution. We also ensure appropriate sensitivities are provided to allow discussion of the assumptions which are the responsibility of company directors.

In addition, to this, we can help with the design of share schemes by letting you know the impact that various designs will have on your accounts. We can also calculate values of awards on a "true" expected value basis to help with setting appropriate rewards.

Finally, it is important that members of share option schemes have a full understanding of the value of such benefits. We can also help you communicate this value to members.

A flyer with details of our services in this area can be found in our Information Center.

For further information on our share scheme services or to request a quote please contact Mark Rowlinson in our Leeds office.