Accounting Standards Board

ASB Issues Standard on Share Options

ASB PN 237

07 April 2004

The Accounting Standards Board (ASB) today issued FRS 20 (IFRS 2) ‘Share-based Payment’. The new FRS requires companies to recognise an expense, measured at fair value, in respect of their employee share option plans, share purchase plans, and other share-based payments. It is mandatory for accounting periods beginning on or after 1 January 2005 for listed entities and 1 January 2006 for all other entities.

The new standard has the effect of implementing in the UK IFRS 2 ‘Share-based Payment’, which was published in February by the International Accounting Standards Board (IASB). The requirements of FRS 20 are identical to those of IFRS 2, except that implementation of the standard for unlisted entities has been deferred one year—to allow more time for unlisted entities to prepare themselves for implementation—and entities applying the Financial Reporting Standard for Smaller Entities (FRSSE) are exempt from the standard.

Announcing the decision, Mary Keegan, Chairman of the ASB, said:

“This is an important standard which addresses a weakness in the existing requirements. At last there will be comparability between companies that use share-based payments to pay employees and other suppliers and those that don’t. Implementing an international accounting standard in this way also shows how committed we are to the convergence process, a process which is to the benefit of preparers and users alike.”

END

Notes to Editors

1 ‘Share-based payments’ include:

(a) all executive share option and share purchase plans and all employee share option and share purchase schemes, including all Save-As-You-Earn (SAYE) plans and similar arrangements;

(b) arrangements such as share appreciation rights, where a cash payment is made, the amount of which depends on the share price; and

(c) transactions with suppliers that involve a share-based payment being made in exchange for goods or non-employee services.

2 A ‘listed entity’ is in effect an entity that has shares or other capital instruments that it has issued traded on the London Stock Exchange or any other regulated market of an EU Member State.

3 FRS 20 supersedes the existing UK accounting requirements in this area, which are set out mainly in UITF Abstract 17 ‘Employee share schemes’.

4 FRS 20 is an addition to existing UK accounting requirements. With effect from accounting periods beginning on or after 1 January 2005, listed entities preparing consolidated financial statements will be required, and most other entities are expected to be permitted, to prepare their financial statements in accordance with EU-adopted international accounting standards rather than the extant UK accounting requirements.

5 FRS20 is available from ASB Publications, cost £15.00, post-free. Web: www.asbpublications.com. IFRS2 is available from the IASCF Publications Department. E-mail: publications@iasb.org.uk. Web: www.iasb.org.uk.