The standard, which could cost UK plc as much as £5bn in lost profits, could be dead in the water after a letter from the Law Society to the Accounting Standards Board warned companies may be able to ignore the new rule because it lacks legal backing.
After years of heated debate, International Accounting Standards Board chairman Sir David Tweedie will today (Thursday) publish plans to require companies to book all employee stock options in the accounts as an expense. The move is backed by ASB chairman Mary Keegan who is recommending the measure be adopted in the UK by 2004 – a year earlier than necessary.
But the Law Society has deep misgivings. Its letter to the ASB declares: ‘This is..something that requires a change in law.’
It adds: ‘We stress that we are not saying the Accounting Standards Board’s proposals to expense options in the p&l account are not a good idea; merely that they need to wait for the law to catch up.’
The Law Society goes on to say the rule change could push a company into mounting a challenge in a UK court. The letter has been copied to the Financial Reporting Review Panel, the European Commission, the CBI and the 100-Group of FDs.
A company law expert told Accountancy Age: ‘Companies can [comply with the new law] but they will be taking a risk. The important thing is that most businesses don’t want to do it, so they can use the legal angle not to.’
The move, which is opposed by technology companies Logica and Xansa among others, requires share options to be booked at grant date and measured at fair value.
Mary Keegan said she was surprised the society now questioned the legality of the standard.
‘The legal position is no different to what it was before,’ she said.
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