• Discussed with SAC: July 2001
• Discussed and added to agenda at July 2001 IASB Meeting
• Discussed at September 2001 IASB Meeting
• Comments invited in G4+1 Discussion Paper: September 2001
• Discussed at October 2001 IASB Meeting
• Discussed at November 2001 IASB Meeting
• Discussed at February 2002 IASB Meeting
• Discussed at March 2002 IASB Meeting
• Discussed at the April 2002 IASB Meeting
• Discussed at the May 2002 IASB Meeting
• Discussed at the June 2002 IASB Meeting
• Discussed at the July 2002 IASB Meeting
• Discussed at the September 2002 IASB Meeting
• Exposure Draft ED 2, Share-Based Payment, issued November 2002. Comments due 7 March 2003.
• Discussed at the April 2003 IASB Meeting Initial consideration of comments on ED 2
• Discussed at the May 2003 IASB Meeting
• Discussed at the June 2003 IASB Meeting
• Discussed at the July 2003 IASB Meeting
• Discussed at the September 2003 IASB Meeting
• Discussed at the October 2003 IASB Meeting
• Discussed at the November 2003 IASB Meeting
• Discussed at the December 2003 IASB Meeting
• IFRS 2 issued February 2004

Background

This project involves developing a standard on all aspects of accounting for share-based payments to employees (including employee stock options), suppliers, creditors, and others. This project will result in a new standard providing guidance in this area. There is no existing IAS addressing recognition and measurement. IAS 19, Employee Benefits, requires some disclosures.

In September 2001 the IASB invited comments on the G4+1 discussion paper on share based payment. The IASB issued Exposure Draft ED 2 in November 2002. In April 2003 the Board began consideration of the comments on the exposure draft.

Deloitte Letter of Comment on Exposure Draft ED 2

Click here for the Deloitte Touche Tohmatsu Comment Letter on ED 2 (PDF 230k, 13 March 2003).

Timetable

• Click for IASB Project Timetable

Summary of the Main Proposals in ED 2

Discussion at the April 2003 IASB meeting – Initial Consideration of Comments on the Exposure Draft

At its meeting in April 2003, the Board discussed an analysis of responses to the first five questions contained in ED 2. The Board re-affirmed their support for the general principle of recognising share-based payments in the financial statements and for recognising an expense (by vote of 14-0). In addition the Board confirmed their support for the general principle of measuring share-based payments at fair value.

The Board noted that various exceptions to these general principles arising from the comment letters would be discussed, for instance, the use of minimum value for unlisted entities.

The staff proposed, as a result of comments made, that the concepts project should amend the IASB Framework to clarify the meaning of an expense in line with the discussion contained in the US Concepts documents.

The Board agreed to post the comment letters on its website.

Discussion at the Board's May 2003 Meeting

The staff noted that the majority of respondents to ED 2 supported measuring share-based payments at grant date. Respondents believed grant date measurement could be applied either:

• by measuring all factors at the time of initial recognition and not subsequently adjusting for experience or changes in estimates (the units-of-service approach in ED 2 is an example of this), or
• by making a best estimate at initial recognition and adjusting for changes in those estimates over time (the approach under FASB Statement 123, Accounting for Stock-Based Compensation, is an example of this).

The staff noted that under ED 2, grant date measurement was used, for practical reasons, as a surrogate for service date measurement, because the Board believed that on grant date the contract was an executory contract and performance only commenced as service was provided.

The staff noted that the majority of respondents did not support the units of service approach, generally citing the difficulties of incorporating performance conditions into measurement. After discussion, the Board agreed not to retain the units of service approach that was proposed in ED 2 and, instead, to use the approach set out in SFAS 123.

The Board agreed the following:

• To use a grant date measurement model (vote 12-1).
• To include an estimate of performance and vesting conditions within this measurement and adjust thereafter for changes in the estimates (vote 10-3).
• To use this approach for practical reasons (vote 11-2).
• There should be no reversal of expenses where the option vests but is not exercised (vote 13-0).
• The expense should be recognised over the vesting period (vote 11-2).

Discussion at the Board's June 2003 Meeting

The Board discussed six issues relating to questions raised in ED 2. The Board was not asked to make any decisions at this meeting, as other standard setters will be addressing these issues in the near future and it will be helpful to the staff and the Board to understand their views on the issues. The Board will address these issues in the July 2003 meeting with the intention to make tentative decisions.

The Board first discussed the proposal to measure employee share-based payments based on the fair value of the equity instruments granted (Question 7 in ED 2). The staff noted that a majority of the respondents supported the conclusion in ED 2 to measure these services by reference to the fair value of the options granted, as the option's fair value is more readily determinable than the fair value of the services received. A few Board members suggested adding in the notion of a rebuttable presumption; however, there seemed to be a majority supporting the requirement in ED 2. Specifically, several Board members were concerned that allowing employee options to be valued at the excess of the fair value of the services received over the current cash salary would generally result in a value of zero, which they felt was clearly inappropriate.

Question 11 of ED 2 proposed that, in the absence of an observable market price for options granted, an option pricing model that takes into account various factors (such as exercise price of the option, life of the option, current price of underlying shares, volatility in the share price, dividends expected, and risk free interest rate over the life of the option) should be used. The Board confirmed its intention that the Black Scholes model should not be prescribed; however the standard will indicate that it is one model that would be appropriate. The Board also noted that since valuation models are being improved and updated, the final standard should not give prescriptive guidance.

ED 2 proposed that the option be valued based on its expected life, not its contractual life (Question 12). The Board reiterated its support for that model. The Board also reiterated its support for including in the grant date measurement the effects of a reload feature (Question 14). The Board noted that several valuation experts have suggested that models to value reload features have been sufficiently developed and should cause little problem in practice.

Question 15 of ED 2 asked respondents to identify other common features of employee share options for which the IFRS should specify requirements. The staff noted that items consistent with the fair value measurement should be picked up in the final IFRS (for example, the effect of black-out periods on the fair value calculation).

The final issue discussed was the general form of the final standard. Specifically, the staff asked the Board whether the final standard should be more principle-based or more prescriptive (Question 16). The Board confirmed that the final standard should not be as prescriptive as some respondents requested. While there will be some guidance on how to determine fair value, there should be room left for more appropriate valuation valuations to develop. Therefore, while the Board may not prescribe a model, it will prescribe the parameters within which the model should operate.

Discussion at the Board's July 2003 Meeting

The Board decided not to change the proposal in ED 2 that employee options should be measured at their fair value (vote 12-2).

The staff reported to the Board about the meeting of valuation experts held by the FASB on the 8th of July. The experts reported that a more sophisticated model than the Black-Scholes model may be more appropriate to calculate the expense arising from share based payments. The shortcoming of the Black-Scholes is that it is a static model, as the inputs have to be determined at the inception and cannot be updated thereafter.

Measurement of transactions with parties other than employees

The Board confirmed its earlier decisions on the following valuation principles in ED 2 and agreed to develop certain implementation guidance as noted:

• to use option pricing models in the absence of market prices;
• not to recommend a particular model but provide possible guidance;
• to retain a list of factors to be taken into consideration;
• to develop implementation guidance on measuring factors;
• to require that non-transferability/early exercise options be taken into account (and other employee behaviours are to be considered);
• to develop guidance on measuring reload factors in initial measurement.

The Board also agreed that the measurement date for non-employee options should be the date on which the goods or service are received.

Employee options

The Board agreed (vote 12-2) to retain the proposal to measure employee options at fair value of financial instrument granted. The Board considered but decided against allowing an entity to use the value of services rendered as the measure of expense.

Cash-settled transactions

ED2 proposed fair valuation at each reporting date until the settlement, with changes in the liability recognised in net profit or loss. The majority of the comment letters supported the proposal, and the Board agreed not to change it.

Repricings and modifications

The Board agreed (vote 13-1) to adopt the SFAS 123 approach in determining incremental value given and recognising additional expense after vesting date. Replacements should be accounted for similarly to repricings.

Cancellations

The Board agreed to adopt the SFAS 123 approach of recognising the remaining amount as expense immediately (vote 12-2). Any cash payments should be treated as reduction of equity, with any amount in excess of the original equity credit recognised as expense (vote 14-0).

Accounting for tax effects

ED2 proposed that all tax effects should be treated in the income statement. Most comment letters agreed with ED2, though this treatment is not consistent with the treatment under FASB Statements 109 and 123. The Board agreed (9-3) to recognise all tax effects in the income statement.

Discussion at the Board's September 2003 Meeting

The staff proposed a revised project plan, which the Board agreed to. The Board will have to conclude deliberations at the October meeting and should publish the final Standard during the first quarter of 2004. Any significant issues arising from FASB's deliberations would be considered by the Board at the December meeting.

Definition of grant date

The Board redeliberated the grant date definition and used the two following examples:

Example 1

On 1 March an entity, a wine producer, offers all of its employees the opportunity to participate in the grape harvest in late summer, for additional remuneration. The employees will be given 24 hours notice prior to the harvest date, and must then decide whether to accept or reject the offer. Each employee who accepts the offer and participates in the harvest will receive 30 fully vested shares. The entity's shares are priced at $10 per share on 1 March; $15 per share on 21 August, when the entity telephones each employee to (a) advise that the harvest will take place on the next day and (b) establish whether the employee accepts the offer to participate in the harvest; and $15.50 per share on 22 August, when the harvest takes place.

Example 2

Enterprise B hires a CEO. As part of the employment contract, Enterprise B agrees to give 100,000 fully vested stock options at the end of each of the next 5 annual periods (500,000 stock options in total); however, the exercise price of the stock options will be the average market price for the 12 months preceding each separate delivery of options . . . [B]oth Statement 123 and the Proposed IFRS define grant date as the date when both the employer and employee have “a mutual understanding of the terms” of the award. The employer and the employee understand the formula that will establish the exercise price at the date of each individual grant; however, the exercise price is a key term of the options granted over the five-year period and is not known. Consequently, the day the agreement is signed is not the grant date for the award under both Statement 123 and the Proposed IFRS. [FASB Invitation to Comment, Accounting for Stock-Based Compensation, Paragraph A17; footnote reference omitted.]

The Board concluded that the grant date is when the employee accepts the commitment. The Board asked the staff to provide further narrative clarification of the definition.

Measurement of transactions with parties other than employees

The staff proposed a general principle of measuring goods and services directly and only if this cannot be reliably measured to use the fair value of the financial instrument. Both valuations to take place at grant date.

The following example was proposed for discussion:

The entity, a manufacturer of clocks and watches, enters into an agreement with an antique dealer, whereby the entity agrees to issue 10,000 shares to the antique dealer, conditional upon the antique dealer delivering a rare antique clock to the entity within the next five years. The antique dealer is not firmly committed to delivering the clock—if the clock is not delivered during the agreed period, the agreement will lapse, without the antique dealer incurring any penalty. No consideration was exchanged between the entity and the antique dealer upon entering into the agreement. Therefore, the only asset that the entity will receive in respect of the agreement is the antique clock, if and when the antique dealer delivers it. The entity is unable to estimate reliably the fair value of the clock, because such clocks hardly ever come onto the market. The entity must therefore recognise the asset received (the clock) by measuring the fair value of the shares issued. The entity's shares have a fair value of $15 per share at the agreement date. The antique dealer delivers the clock two years later, when the share price is:

• Scenario A: $20 per share.
• Scenario B: $10 per share.

One Board member emphasised that when the non-employee is not committed, the measurement should take place at date of commitment, usually the date of exchange. In addition, where the direct value cannot be determined, then the date of exchange value should be used.

This proposal was not accepted by the other Board members. The Board finally supported the staff proposal.

Liabilities and equity: ED 2 and IAS 32

The Board agreed the differences regarding the classification under IAS 32 and ED2 should be retained with one exception. The Board agreed that where the entity has the choice of settlement, the entity should use the IAS 32 proposed answer and not the ED2 answer.

One Board member expressed concerns regarding written puts and stated that in accordance with the IGC guidance for IAS 39 these could not be considered to be normal purchase and sale transactions and would thus be accounted for as derivatives under IAS 39 and not as share-based payments under ED2.

The Board acknowledged that this could be a problem, but it was agreed to consider this matter outside the meeting.

ESOPs, ESPPs, and broad-based employee share plans

The staff presented these plans to the Board and noted the divergence with US GAAP, which allows an exemption. The Board agreed not to provide an exemption or further guidance on these plans. They will however ask IFRIC to consider removing the exemption in SIC 12 for equity compensation plans and to determine whether further guidance for these plans is needed.

Valuation issues, including restricted stock and unlisted entities

General

The Board agreed to allow entities to use intrinsic value (which would be adjusted to exercise date) when the fair value of the goods or services or the financial instrument cannot be determined at grant date. This would apply to all entities whether listed or unlisted. Once this exemption is used for a particular transaction that transaction would need to be accounted for on this basis even if the fair value could subsequently be determined.

Restricted stock

The Board agreed that there should be a very small discount, if any, for issues such as restricted shares.

Option pricing models

The Board agreed to provide guidance on the circumstances in which particular types of option pricing models are more appropriate than others.

Transition and effective date

The Board agreed that the effective date of the standard should be 1 January 2005.

The Board agreed to retain the transition proposals of ED 2 but to allow retrospective application to the extent possible if the fair values were determined and publicly disclosed , and to require modifications for those transactions that were excluded as a result of the transition provisions after 7 November 2002 to be treated as modifications.

Scope

The Board re-debated the scope issues between ED2 and IAS 32-39. The staff proposed three views:

Alternative 1 - All employee transactions are in the scope of Share-based Payment (SBP). Non-employees transactions are only in SBP scope if the transaction is considered as a normal transaction (under SBP definition) and if the value of the goods or services can be reliably valued, otherwise the transactions are in the scope of IAS 39.

Alternative 2 - All employee transactions are in the scope of SBP. For non-employees transactions, if the transaction is not normal (under IAS 39 definition) then it should be recognised as defined under IAS 39 unless it is a forward then it falls in SBP scope.

Alternative 3 - SBP should apply to all transactions that would otherwise be normal (normal for these purposes means other than speculative).

The Board agreed to decide at the next meeting. However, there was tentative support for alternative 1.

Transition

The Board agreed:

• for options affected by the 7 November 2002 date, the pre-comparative amount is adjusted through opening retained earnings,
• the fair value of liabilities will be determined on 7 November 2002 and accounted for from that date with adjustments to opening retained earnings of the comparative amounts, and
• full retrospective application is permitted for liabilities.

IFRS 1 will be modified based on the above.

The Board considered the staff's proposals for disclosure. These were generally accepted with additional disclosures for the vesting 'true-up'.

Discussion at the Board's October 2003 Meeting

The Board redebated the ED 2 approach to classifying arrangements by which an entity has a stated policy or past practice of settling a share-based payment obligation in cash. At the September meeting the Board had agreed to make certain changes including removal of the past practice and stated policy allowances. However, the Board has now agreed to revert to the ED 2 approach (vote of 12-2).

The Board discussed various types of modifications of equity-settled arrangements and agreed the following:

• A modification that results in a decrement in fair value should not be recognised, and any increase should be recognised over the remainder of the vesting period.
• A decrease in the number of equity instruments granted is a partial cancellation of the grant, and any unrecognised expense related to the change should be recognised immediately. The increase in fair value resulting from an increase in the number of equity instruments should be spread over the remainder of the vesting period.
• A change in service conditions that changes the length of the vesting period but does not decrease the probability of vesting should continue as if the modification had not occurred. Where the probability of vesting is increased the modification is accounted for via the truing up method under the modified grant date method.
• A change in performance conditions would be accounted for in the same manner as a change in the vesting period.
• A change in the classification of the grant from equity to liability should continue to be expensed based on the grant date values but the change in fair value of the liability between modification date and settlement date should be recognised.

The staff proposed adding explanatory guidance to clarify the purpose of the business combination scope exclusion as follows:

• Equity instruments issued in a business combination in exchange for control of the acquiree are not within the scope of share-based payments.
• Equity instruments granted to employees of the acquiree in their capacity as employees are within the scope of share-based payments.
• The cancellation, replacement or other modifications to share-based payments because of a business combination or other equity restructuring should be accounted for in accordance with the requirements of share-based payments.

The Board agreed with these clarifications.

Discussion at the Board's November 2003 Meeting

During the October joint meetings the Board considered the following:

• Whether, in the context of situations in which the measurement date for tax purposes is later than the measurement date for accounting purposes, the tax effects relate to an income statement item only, or to both an income statement item and an equity item, or to an equity item.
• If it is accepted that the tax effects relate to both an income statement and an equity item, how the tax effects should be allocated between the income statement and equity.

On the first issue, the Board agreed that the tax effects relate to both an income statement item and an equity item. This conclusion is based on what is often described as the 'two transaction view', that is, the tax deduction relates to two transactions or events, being:

a. a transaction in which the employees render services as consideration for options or shares, which gives rise to remuneration expense (an income statement item), and

b. an equity transaction/event.

The Board considered various allocation methods proposed by FAS 123, the FASB staff and the IASB staff. It was noted that the differences between the methods are:

a. The interpretation of tax legislation that bases the tax deduction on the difference between the share price and the exercise price at exercise date, i.e. whether this represents an intrinsic value or a fair value measurement basis for tax purposes. In addition a method that allocates tax benefits received, up to the tax benefits on the recognised expense (at a particular point in time), are recognised in the income statement and any excess tax benefits are recognised in equity.

b. The treatment of tax effects where the application of a later measurement date for tax purposes results in a lower tax deduction than would have occurred had that tax deduction been measured at grant date.

c. The recognition of the deferred tax asset between the date when the expense is recognised and the date when the tax deduction is received, including whether the current share price should be considered in measuring that deferred tax asset (for either recognition or impairment purposes)and whether a deferred tax asset should be recognised for the expected future tax benefits relating to the equity item.

The Board agreed as follows:

• The allocation is based on the tax benefit method.

• The write-down is charged to the income statement (9-4).

• The current share price should be used to determine the deferred tax asset and the deferred tax asset is recognised for the expected future tax benefits relating to both the income statement item and equity item.

The Board agreed that in the cash flow statement, the tax cash flows should be classified in a manner that is consistent with the recognition of the tax effects in the income statement and equity. This results in any tax income recognised in the income statement being classified in the cash flow statement as operating cash inflows and tax effects recognised directly in equity should be classified as cash inflows or outflows from financing activities.

The Board agreed that for the purposes of EPS calculations, the tax effects that would be credited or debited to equity should be included in the calculation of the assumed issue proceeds.

No Board member indicated they would be dissenting based on decisions to date.

Discussion at the Board's December 2003 Meeting

The Board considered various issues arising from preliminary drafts of the final standard.

The staff proposed including a definition of "employees and others providing similar services". The staff recommended that employees be defined broadly, so that it includes not only individuals who are employees for legal or tax purposes, but also individuals who work for the entity under its direction in the same manner as individuals who are regarded as employees for legal or tax purposes.

The Board agreed with the staff proposals together with a clarification that all directors, including non-executive directors, are included in this category. It was noted that this could be done by including a reference to "key management personnel" as defined in IAS 24. It was also agreed to include examples of various inclusions and exclusions.

The staff proposed including a definition of the phrase 'market condition'. In addition the staff has also proposed including two illustrative examples in the implementation guidance to illustrate the application of the requirements of the IFRS to a grant of equity instruments with a market condition and to clarify what happens in situations in which a grant includes both a market condition and a non-market performance condition.

The Board agreed with the staff proposals.

The staff noted that in certain cases the Board had agreed that the entity should measure the equity instruments at their intrinsic value, and remeasure intrinsic value until exercise date.

The staff recommends that the IFRS specify that the requirements for market conditions, modifications and cancellations do not apply under the exercise date/intrinsic value method. The staff also recommended that if an entity settles a grant of equity instruments to which the exercise date/intrinsic value method has been applied:

(a) if the settlement occurs during the vesting period, the entity should account for the settlement as an acceleration of vesting, and hence should recognise immediately the amount that would otherwise have been recognised for services received over the remainder of the vesting period.

(b) any payment made on settlement should be accounted for as the repurchase of equity instruments, ie as a deduction from equity, except to the extent that the payment exceeds the intrinsic value of the equity instruments, measured at the repurchase date. Any such excess should be recognised as an expense.

The Board agreed with the staff proposals.

The Board had previously agreed that the IFRS should include a requirement to disclose information about the number or percentage of equity instruments expected to vest, as estimated at the beginning and end of the period, along with a brief explanation of the reasons for any significant change in estimate during the period. The staff recommended that this disclosure requirement be deleted.

The Board agreed with the staff proposal.

The staff recommended including a requirement in the transitional provisions that the entity should apply with the paragraphs of the IFRS that require disclosure of information on the nature and extent of share-based payment arrangements that existed during the period.

The Board agreed with the staff proposal.

Some questions have arisen as to whether there should be some disclosures concerning liabilities arising from share-based payment transactions.

The staff recommended that, if the Board wishes to include some disclosure requirements concerning liabilities, this should be limited to the opening and closing balance of any such liabilities, and details of movements during the period.

The Board agreed that the closing balance and the intrinsic value at balance sheet date should be disclosed.

The staff recommended adding some guidance to clarify that, if the goods or services are received on more than one date, the entity should measure the fair value of the equity instruments granted on each date when goods or services are received, and apply that fair value when measuring the goods or services received on that date. However, an approximation could be used in some cases. For example, if an entity received services continuously during a three-month period, and its share price did not change significantly during that period, the entity could use the average share price during the three-month period when estimating the fair value of the equity instruments granted.

The Board agreed with the staff proposal.

The Board noted the FASB decisions in respect of the tax effects of equity-settled transactions. These being:

• If the tax deduction arises in a later period than when the expense is recognised, a deferred tax asset should be recognised, based on the cumulative expense. The current share price should not be taken into account, for recognition or impairment purposes.
• If the tax deduction ultimately received is less than the cumulative expense, the writeoff of the unrecovered portion of the deferred tax asset should be recognised in the income statement.
• If the tax deduction ultimately received is greater than the cumulative expense, the excess tax benefits received should be recognised directly in equity.

• Under the IASB method, the deferred tax asset is recognised based on an estimate of the future tax deduction. If changes in the share price affect that future tax deduction, the deferred tax asset will be remeasured in each period. In contrast, the FASB method takes no account of the current share price. This means that the amount of the deferred tax asset under the FASB method is likely to differ from the amount under the IASB method.
• Because the IASB method recognises a deferred tax asset based on the expected future tax deduction, and this includes both the expected tax benefits allocated to the income statement and the expected tax benefits allocated to equity, there may be tax benefits recognised in equity at an earlier date than under the FASB method.

A further difference is that under the IASB method, the allocation between the income statement and equity applies irrespective of why the tax deduction differs from the cumulative expense. Under the FASB method, the allocation of tax benefits between the income statement and equity applies only if the tax deduction differs from the cumulative expense because of the application of a later measurement date for tax purposes. In other situations, in which a difference arises for reasons that have nothing to do with an equity transaction or event, all of the tax benefits received would be recognised in the income statement.

IASB Discussion of Responses to G4+1 Paper

In September 2001 the IASB invited comments on the G4+1 Discussion Paper on share-based payment. A total of 281 replies were received. It was noted that 116 identical replies had been received from companies in the US, which broadly did not support the proposals. Responses were received from users in the UK, US, Canada, including fund managers, pension fund investors, and the Comptroller of the State of New York.

Replies from users of accounts said that they support an accounting standard on share based payments and that they would welcome more transparency in accounts. Preparers who responded were on the whole opposed to the recognition of share based payments and generally critical of the discussion paper. They preferred the US GAAP approach (disclosure of the value at grant date with expense recognition only if the exercise price is below market price at grant date).

Most preparers of accounts disagreed with the proposals on practical grounds, specifying the difficult of measurement. The actual basis of measurement put forward was agreed with, but some respondents asked why the IASB could not simply adopt US GAAP. It was noted that US GAAP theory does require measurement, but in practice the measurement always equals zero in order to get around this issue. Most respondents did not mention non-employee options.

The majority of respondents supported grant date as the correct measurement date. (The G4+1 paper had proposed vesting date.) This is because they considered that the contract was entered into at that date. Service date and vesting date were not well supported. Vesting date was not supported either, as it was deemed to cause volatility in the results.

An advisory group with 18 members has been formed to serve in a consulting role to the project. Members have been drawn from around the world and came from a very broad base including users, preparers, academics, auditors, regulators, valuation specialists, and company directors.

The Board also considered a conceptual issue raised by some of the respondents to the paper -- whether recognition of an expense arising from some share-based payment transactions is consistent with the definition of an expense in the IAS Framework. It was agreed to consider this further and to write a Basis for Conclusions to assist in resolving this issue. It was concluded that it might be necessary to modify the Framework to resolve this issue.

November 2001 AIMR Survey of Analysts' Views on Expense Recognition

Financial analysts worldwide strongly favour expense recognition for stock options. 83% of 1,944 investment analysts and portfolio managers surveyed by the Association for Investment Management and Research believe that all stock options granted to employees are compensation whose cost should be recognised as an expense in measuring net income. A quarter of the respondents were from Europe and Asia-Pacific, the rest from North America. AIMR surveyed its members "to gauge their response to a proposed agenda topic of the International Accounting Standards Board (IASB) that could require companies to report the fair value of stock options granted – including those to employees – as an expense on the income statement, reducing earnings". 81% of respondents use information about stock options when evaluating a firm's performance and determining its value.

December 2001 International Employee Stock Option Coalition Formed

A large group of international companies and organisations have formed the Washington-based International Employee Stock Option Coalition (IESOC). In a Letter to IASB (PDF 153k), they urge a disclosure based approach similar to that of SFAS 123, rather than expense recognition for share-based employee compensation.

July 2002 AIMR Public Statement

The Association for Investment Management and Research wants FASB to follow IASB's plan to require companies to recognise the fair value of stock options given to employees as compensation expense. "The International Accounting Standards Board is demonstrating leadership in putting the best interests of investors ahead of the preferences of corporate managements", AIMR said. Click for AIMR Press Release (PDF 86k).

CFA Institute Web Page

The Chartered Financial Analysts Institute (new name for AIMR) has a web page explaining why "Expensing Stock Options is in the Shareholder's Best Interest". They say: