We support the view that share-based payments represent a cost that should be reflected in accounts and this underlies the detailed responses, below. Such recognition in accounts would be an important step.
However, a sizeable proportion of our membership has concerns about the proposals, in particular:
- Complexity
The calculations may be very complex. This may make it extremely unlikely that they will add much real understanding to many readers. If readers cannot follow the complexity of the calculation, they may be unable themselves to interpret the resulting numbers in any meaningful manner, at least until a body of experience is built up. Misinterpretation by the media is particularly concerning and we believe that experience with FRS 17 augurs badly for this.
- “Snapshot” market values
FRED 31 represents another proposal based on snapshot market values. Members have serious concerns about this principle, believing that market perceptions may be damaged in ways which destroy real value.
- Some members have expressed concern at the changed impact on companies’ distributable reserves compared with previous practice.
- SAYE schemes
Some members also have the view that SAYE schemes are not a reward for services in any way but rather a response to a Government incentive to broaden share ownership and employee involvement. The effect of these proposals may draw attention to their cost. If the schemes are indeed not seen as a potential employee motivator, this may lead to schemes being discontinued.
Some of these concerns would be addressed in part by appropriate TRANSITIONAL ARRANGEMENTS. Furthermore, introducing the change first for listed companies only would give those associated with other companies an opportunity to digest the implications over a longer period and when real data on other companies was in the public domain.
We are aware that a private submission1 to the ASB regarding FRED 31 will advocate the concept of a separate EQUITY MANAGEMENT ACCOUNT, where how managers have dealt with the shareholders’ equity can be set out. We believe that this would be worth examining seriously.
