Report highlights impact of ASB plan
FTSE-100 companies could see profits drop by 5% if plans to make business add the cost of share options to profit and loss accounts are approved, according to new research.
Private field tests carried out on 11 clients of Big Five firm PricewaterhouseCoopers have revealed that on average company profits would be reduced by 5%. And the profits for one internet client fell by half under the proposals.
Business leaders’ biggest complaint has centred on the volatility that the planned accounting standard will cause. The PwC research has confirmed these fears.
Peter Holgate, senior technical partner at PwC, said: ‘Companies have thought the plans would increase volatility. Now they have a measure of that volatility.’
The Accounting Standards Board consultation period has uncovered growing hostility to the plans with a large number of FTSE-100 companies, such as British Telecom, Vodafone and Logica, writing to the ASB in opposition.
‘The main thing people worry about is the volatility. It’s hard for people to deal with fluctuating figures. That’s not to say it is wrong,’ said Holgate.
The ASB proposal calls for the share price to be calculated at its vesting date, while business would prefer it to be calculated at its grant date since it would cause less variation.
‘What’s novel about [the proposals] is that they allows share prices to affect profits,’ added Holgate.
The discussion paper, devised by the world’s five leading standard setters, has been rolled out on an international level in anticipation of opposition and to allay fears of the unequal playing field effect.
The National Association of Pension Funds and the Association of British Insurers which together control more than half of the UK stock market have expressed support for the ASB’s plan.
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Big business upset with ASB proposals