Time running out for non-plcs on share-based rules

Grant Thornton has warned large and medium sized enterprises whose accounting
periods begin on or shortly after 1 January 2006, that time is running out to
meet the accounting requirements set out
in FRS
for share-based payments.

The requirement initially introduced in 2005 applied only to listed
companies, however, this is the first time non-listed companies will have to
meet the requirements set out by the
Accounting Standards Board.

The requirements stipulate that companies who make share-based payments to
their employees, or other parties, must recognise an expense for these payments
in their profit and loss account. This is done by using an option pricing model
which reflects the fair valuation of those options at the date of grant.

John Graham, life actuarial director within
Thornton’s Financial Markets
Group said: ‘The difficulty for these
businesses is that this is the first time their financial directors or managing
directors will have to use these option pricing models.

‘Finding the necessary inputs for these models will produce unique problems
for unlisted companies as they are unlikely to have a history of the company’s
share price and so estimating the expected volatility of the share price will
potentially be difficult. They may not even have a share price at all until they
decide to issue such options to an employee.’

Further reading:

UK investors write to Brussles over US standard

Fair value sparks IFRS fatigue

IFRS-light still too heavy

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