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Technical update. (News Round Up).

Proposals by the Accounting Standards Board (ASB) on the treatment of share-based payments have caused controversy in the accounting profession. CIMA broadly supports the proposals, describing them as "real improvements to the reporting and disclosure of share-based payments", but it has called on the ASB to reconsider the 2004 starting date. This is a whole year before the general requirement for EU-listed companies to harmonise with international standards in 2005. Instead, the institute advocates a big-bang approach to implementing all the financial reporting changes. The ASB has proposed that, when an entity receives goods or services in exchange for a share-based payment, it should treat this as an expense. The expense, which should be measured by fair value, must be recognised over the period in which the goods or services are received. But Michael Pearce, European partner at Mercer Human Resource Consulting, thinks that the method is a nonsense, it will create a huge amount of work for firms and its calculations will be meaningless. "The approach of the ASB is excessively complex, the model is inappropriate (it was never developed to value employee share options but was aimed at shorter-term traded options) and to have to account for lapsed options is so far removed from reality as to be quite bizarre," he said. Pearce advocates full disclosure in published accounts of the growth on the share price given to employees. "Investors can then readily see what has potentially been given away each year," he said. Ernst and Young has also expressed "serious reservations" about the proposals. The firm has questioned whether it is possible to come up with an accurate measurement of the cost to companies of awarding options to directors and employees.

Contact: www.asb.org.uk
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Publication:Financial Management (UK)
Article Type:Brief Article
Geographic Code:4EUUK
Date:May 1, 2003
Words:289
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