Share-Based Payment

Date recorded:

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)O 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.


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.

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