Abstract
M.Comm. (International Accounting)
The study investigates the potential effect of applying a fair value model after the grant
date to employee share options. The research assesses the appropriateness of the
requirements of IFRS2 Share-Based Payment transactions with a specific focus on
equity-settled Employee Share Options. The researcher has calculated the percentage
movements or changes of fair value between each financial year including the overall
percentage change. The study was mainly triggered by the IFRS2 Share-Based
Payment rules and various arguments from different authors challenging the
appropriateness of IFRS2 Share-Based Payment on employee share options (ESOs)
transactions in capturing the full economic value transferred to the option holder at
exercise date when applying a grant date accounting model. The study provides
insights into whether a grant date accounting model is appropriate in measuring ESOs
and capturing the full economic value transferred to the option holder.
The application of a static fair value model in measuring the value of ESOs has the
potential for both positive and negative effects on the compensation cost recognised in
the financial statements over the vesting period. After analysing the descriptive financial
data on fair value per option over the six year period included in the sample selection, a
conclusion was reached that, IASB should consider to true-up or make a restatement of
the opening balance of the fair value reserves account in order to minimise the potential
permanent error in equity accounts and to minimise the potential effect of understating
or overstating the compensation cost. The IASB should further consider the proper
classification of equity instruments issued to employee ESOs which comply with other
financial instrument accounting standards such as the IAS32 – Financial Instruments:
Presentation, and IFRS9 Financial Instruments. This will ensure that transactions
viewed as economic equivalents of each other are treated in the same way from an
accounting perspective, and the correct measurement basis of ESOs may be achieved.