Settling on scheme standards (TT Mar03 p20-21)

From 1 January 2004, companies operating share option plans for their employees will see their reported earnings reduced, if a new draft accounting standard comes in to force.In November 2002, the UK Accounting Standards Board (ASB) published draft accounting rules (FRED 31) requiring share-based payments to be recognised in reported earnings from the first accounting year beginning on or after 1 January 2004.The International Accounting Standards Board also published a similar draft standard (ED 2) at the same time (see December Hotline, p10).

There has been considerable press speculation that this will lead to the demise of many share schemes, with a poll by ProShare indicating that about a quarter of the top 500 companies would abandon their employee share schemes.It is therefore important to understand what the new rules will mean.