The Accounting Standards Board is to re-examine how to account for buying shares. employee share option schemes after retail chemist Boots announced a unilateral decision to recognise the costs of buying shares for its employees.
The board’s Urgent Issues Task Force was due to discuss share option schemes yesterday as part of a review of two abstracts: UITF 13 ‘Accounting for ESOP Trusts’ and UITF 17 ‘Employee share schemes’.
Boots caused a stir last week when it announced its intention to take a #63m charge against its 1998/1999 profit and loss account to show the cost of buying shares to meet commitments to its employee savings scheme.
Such SAYE schemes were not not covered by UITF 17.
Rather than issuing new shares to employees, the profit and loss account charge reflects Boots’ decision to buy them on the open market and will show the difference between the purchase price of the shares and the option price offered to staff. In the future, the company estimates the scheme will cost around #20m a year to maintain.
Boots finance director and joint managing director, David Thompson, said the company believed the costs were real and ‘should be recognised’.
In 1996, the UITF sparked a major controversy when it proposed such an accounting treatment and backed down following protests from major retailers including Tesco and Marks & Spencer.
This week, a senior Marks & Spencers accountant said its savings scheme was different to Boots’ and argued: ‘The charges are not big enough to make a difference.’
Robson Rhodes corporate finance partner, John Emerson, said UK accounts over-emphasised directors’ share options and overlooked the costs of employee schemes.
‘If I was a shareholder, I would want to have more information on ESOPs,’ said Emerson. ‘What was the exercise price? Are they hedged and what is the potential unhedged cost? None of which you currently get.’
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