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FRS 20 / IFRS2 Valuations
From 1 January 2006 all employee share options granted after 7 November 2002 will need to be valued in your accounts.
Companies that provide share options to employees as part of their overall remuneration package must now recognise the cost of these options in their profit & loss accounts, or performance statement.
The detailed guidance within FRS 20 on the valuation of share options brings UK GAAP into line with IFRS 2.
The valuation of options can be an extremely complicated technical area of accounting, requiring particular expertise. It is vital to have an understanding of the statistical principles underlying the various valuation models, such as Black-Scholes, Binomial, and Monte Carlo, together with a detailed knowledge of the accounting standard itself and the underlying principles.
Deciding on the valuation model and the data used to input into the valuation model is sometimes difficult, and can have a significant impact on the amount charged to profit and loss accounts. Within FRS 20 there are guidelines relating to the specific terms and conditions of each share option and the differing impact these have on the accounts.
FLB can calculate it for you
At FLB we have the in house expertise to provide or assist in the calculation of the share-based payment. We can provide clear and comprehensive advice on the requirements of FRS 20 and supply you with illustrative valuations of share options. We have provided a number of organisations with this service, including a number of AIM listed companies, and our model has been audited by the Big 4.
You should note that your existing auditors might not be able to assist you as to the calculations required under FRS 20, as this would involve them auditing their own work, which creates a conflict of interest. Our independent approach enables you to provide the figures for your accounts together with the structured rationale behind the tailored calculation, which is specific to your organisation.
FLB can provide assistance with the provisions of FRS 20, providing highly qualified staff with over 100 years of accounting experience, our services are on a fixed-fee basis, agreed with you in advance.
