FRED31: Share-based Payment

ACT supports principles of Financial Accounting Exposure Draft 31 on share based payments for all kinds of goods and services including employee remuneration.

In its comments to the Accounting Standards Board (ASB) today, The Association of Corporate Treasurers (ACT) supported the principles set out by the ASB in FRED 31. It recommended that the approach be extended to bonds convertible into shares.

The ACT expressed some concern at the potential complexity, particularly for non-listed companies, of calculations to make the required estimates of the valuation of share-based payments. It suggests that consideration be given to transition arrangements introducing the change first for listed companies in order to give other companies and the wider public more time to become familiar with the proposals, how they affect companies’ reporting and the implications.

The ACT questioned some of the details of the proposal - including:

• The principle in valuation that equity interests are not revalued. The impact on shareholders which the Draft seeks to make clear may be better captured by revaluation in some cases
• The prescribed basis for time apportionment of expense. A better estimate may be made by consideration of the circumstances in each case
• The expensing of lapsed options. They do not represent a cost to the shareholders and should not be shown as such
• The proposed difference in treatment of cash and equity settled transactions. They are economically equivalent and should not be distinguished.

While supporting FRED 31, the ACT acknowledged it would have real economic effects as the cost of share based payments is highlighted and companies’ distributable reserves are reduced at the margin in comparison to how they were estimated under previous standards.

For example, calling attention to the cost of employee schemes such as Save As You Earn may lead some companies to reconsider them.

Notes to editors

Full text of the ACT Response

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