RegulationAccounting StandardsMazars warns of employee share option pitfalls

Mazars warns of employee share option pitfalls

Mid-tier accounting firm Mazars warns companies of the risks in using inappropriate methods to calculate the cost of employee share option schemes

Mazar’s Edward Haygarth has warned companies to use suitable methods for
calculating employee share options or run the risk of producing inaccurate
valuations.

In a letter to the Financial Times, Haygarth said it was too late
for companies to try and change IFRS2, the international accounting standard
requiring share options to be expensed.

‘The time has passed for justifying whether an expense should be recognised
for share options granted to employees,’ Haygarth said. ‘The International
Accounting Standards Board has made its decision and, with its position
considerably strengthened by the Financial Accounting Standards Board’s adoption
of a similar rule in the US, is highly unlikely to change tack.’

Instead, companies needed to focus ‘on educating their investors and dealing
with the practicalities of the new accounting standard’.

Haygarth said the Black Scholes method, the traditional way of valuing
commercially traded share options, was not appropriate for calculating employee
share options, which had longer commercially traded options and were regularly
subject to vesting conditions.

Haygarth said companies should use the binomial probability model, which took
these factors into account, to work out employee share options.

‘Remunerating employees via the granting of share options should continue,
but for companies to benefit by the new rules they will have to explain the
nature of the changes carefully and how the expense has been calculated,’
Haygarth said.

Related Articles

Demystifying GDPR for accountants

Accounting Standards Demystifying GDPR for accountants

7d Ellen Temperton, Lewis Silkin
EY fined £1.8m over Tech Data audit

Accounting Standards EY fined £1.8m over Tech Data audit

2m Emma Smith, Managing Editor
The great professional services shake-up

Accounting Standards The great professional services shake-up

3m Fergus Payne, Lewis Silkin
What do clients actually want from an accountant?

Accounting Standards What do clients actually want from an accountant?

4m Emma Smith, Managing Editor
Accountants shouldn’t neglect hybrid mismatch anti-avoidance rules

Accounting Standards Accountants shouldn’t neglect hybrid mismatch anti-avoidance rules

4m Alison Conley
Membership of the accountancy profession on the rise

Accounting Standards Membership of the accountancy profession on the rise

5m Alia Shoaib, Reporter
The real price of mates' rates in the provision of professional services

Accounting Standards The real price of mates' rates in the provision of professional services

5m DAC Beachcroft
IASB overhauls insurance accounting with issuance of IFRS 17

Accounting Standards IASB overhauls insurance accounting with issuance of IFRS 17

7m Alia Shoaib, Reporter