Legal and Finance: Accounting Standard Changes Alter Benefits
The proposed introduction of a new accounting standard which will change the way companies account for share-based remuneration of employees has prompted many to review their existing employee benefit arrangements, according to accountants Deloitte & Touche.
Azam Mamujee, a director at Deloitte & Touche in Birmingham, said that while companies had for long been using share-based payment schemes as part of their employee benefit packages, this could well change if the new accounting standard came into force as expected on January 1.
He said: 'While this may seem some time away, a built-in retrospective element proposes that share options granted after November 7, 2002 will be within the new rules -the time to act is now.'
The aim of the proposed new accounting standard is to assign a fair value to share-based payments to ensure that the financial statements properly record the value of services received from employees. Previous accounting practice had been favourable in respect of the use of options. For example, no cost would normally be charged to the profit and loss account if the exercise price was set at the fair value of the underlying shares at the grant date. But under the proposed new standard, those options would be valued using an option pricing model. 'The upshot is that the company's accounts will have to record a cost to the business in the profit and loss account that may be quite different to the charge recorded under current accounting standards. …