The CPA Journal

September 2000

IASC publishes G4+1 position paper on accounting for share-based payment

In late July, the International Accounting Standards Committee (IASC) published a discussion paper titled Accounting for Share-based Payment. The discussion paper resulted from the efforts of the G4+1, a working group consisting of representatives of the standards-setting bodies of Australia, Canada, New Zealand, the United Kingdom, the United States, and the IASC. (The views expressed by representatives were their own and had not necessarily been officially deliberated by their affiliated standards-setting bodies.)

The main proposals in this paper are as follows:

A transaction whereby an entity obtains goods and services from other parties (including employees and suppliers) and payment takes the form of shares or share options issued by the entity to those other parties should be recognized in the financial statements with a corresponding charge to the income statement when those goods or services are consumed;

Such transactions should be measured at the fair value of the shares or options issued. In most cases, an option-pricing model should be applied to establish the fair value of an option.

The vesting date is the appropriate measurement date—the date at which the fair value of the shares or options issued should be established—for the purposes of measuring the transaction amount. The vesting date is the date on which the other party (the employee or supplier), having performed all of the services or provided all of the goods necessary, becomes unconditionally entitled to the options or shares.

Where performance by the other party occurs between the grant date (the date on which the contract between the entity and the other party—the employee or supplier—is entered into) and the vesting date, an estimate of the transaction amount should be accrued over the performance period.

Other issues covered by the discussion paper include the treatment of lapsed options, options that are repriced or otherwise modified, employee share plans with cash alternatives, and share appreciation rights.

Upon the publication of the discussion paper, Sir Bryan Carsberg, IASC secretary-general, noted that “accounting for share-based payments is an area of increasing importance internationally.

“As more enterprises enter public ownership, the existence of (and thus the need for appropriate accounting for) share-based payments is growing rapidly,” Carsberg said. “In responses to the United States [SEC’s] Concept Release on International Standards, this topic was one of the most often mentioned areas where IASC standards are needed. The United States has had accounting standards in place for a number of years, but their most recent standard, [SFAS] No. 123, Accounting for Stock-based Compensation, was extremely controversial. This position paper draws on the U.S. experience as well as recent developments in other countries, and should aid the convergence of accounting standards for share-based payments. The comments received will be of great value to the new IASC board, who will have the responsibility of developing accounting standards in this area.”

According to the IASC, the organizations that participate in the G4+1 have agreed to publish the position paper in their respective jurisdictions and will consider, based on comments received during the comment period, whether the proposals should form a basis for developing new accounting standards. The deadline for comments on IASC’s discussion paper is October 31. Comments may be sent to commentletters@iasc.org.uk. The G4+1 discussion paper, Accounting for Share-based Payment (ISBN 0 905625 83 8) can be purchased for $25 from the IASC Publications Department, 166 Fleet Street, London EC4A 2DY, U.K., +44 (020) 7427-5927, fax: +44 (020) 7353-0562, publications@iasc.org.uk, or via www.iasc.org.uk.

The CPA Journal is broadly recognized as an outstanding, technical-refereed publication aimed at public practitioners, management, educators, and other accounting professionals. It is edited by CPAs for CPAs. Our goal is to provide CPAs and other accounting professionals with the information and news to enable them to be successful accountants, managers, and executives in today's practice environments.

Visit the new cpajournal.com.