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Fair value of company share based payments under IFRS 2/FRS 20
 For accounting periods beginning on or after 1 January 2007, all UK companies not subject to FRSSE are required to recognise the effects of share based payments in their accounts.
The definition of share based payments under IFRS 2/FRS 20 is wide and covers the following:
- Grant of options under both HMRC approved and unapproved share option plans
- Direct awards of shares to staff and directors
- Bonus awards to staff and directors which include share options, shares or a cash bonus which is linked to achieving performance targets in relation to the company's share price
IFRS 2/FRS 20 require companies to charge the fair value of share based payments to their profit and loss account. This charge is intended to reflect the likelihood that the share based payment will provide additional remuneration to the recipient above their base salary.
There is no specific valuation method set out in IFRS 2/FRS 20 which state that the model to be used in assessing fair value should be that which is most appropriate in the light of the terms and conditions relating to the award. It is important that companies consider all relevant factors to ensure the fair value of company share based payments is properly recognised in their profit and loss accounts. These will typically include issues such as the impact of vesting periods, performance conditions, potential volatility in the company's share price and staff turnover/wastage rates.
Our considerable experience in employee share scheme valuations makes us well placed to assist companies in determining the fair value of share based payments.
Please contact us for more information on company share value or to make an enquiry.
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