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3 methods for valuation of employee stock options

Posted by Nasrat Kamal on 30-Aug-2017 17:58:59

With the arrival of Ind AS, companies need to value and account for their stock option schemes using the fair value method. This post describes three methods to carry out fair valuation.

Background

Stock option plans have been highly successful globally in aligning the interests of the employees with those of the shareholders. In India too, many companies offer stock options to remunerate their employees. 

Grant of stock options to employees is a cost to the company when they are granted, or a liability that is yet to be settled from a company's perspective. Globally, there are accounting standards that deal specifically with the accounting of employee stock options; e.g. IFRS 2 and ASC 718 (US GAAP). But the situation in India hasn't been so clear. There hasn't been a comprehensive accounting standard dealing with accounting standards. There are a range of rules and guidelines, that affect different companies differently. 

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Topics: Employee benefits, Ind AS 102, ESOP, stock options

4 ways in which Ind AS 102 can affect your company

Posted by Megha Agarwal on 27-Mar-2017 10:15:00

Ind AS 102 will bring much needed uniformity in valuation and accounting of share-based benefits. However, the cost for the affected companies is likely to increase significantly. 

 

What Ind AS 102 is all about?

Ind AS 102 prescribes financial reporting in respect of share-based benefits and is relevant for companies which remunerate their employees by share-based (or stock option) schemes, such as Employee Stock Options (ESOP), Share Appreciation Rights (SAR), Phantom Equity, Share Purchase Plans (SPP) etc. A brief introduction of these schemes is provided in the white paper at the end of this post.

How are share-based benefits accounted currently?

Currently, there is no accounting standard that deals specifically in the accounting of share-based benefit schemes. Guidance Note No 18 (GN 18) issued by the Institute of Chartered Accountants of India (ICAI) provides 'guidance' on how these schemes should be treated, but it does not have the force of an accounting standard. Consequently, many companies that run material stock option schemes do not make any disclosure or allowance in respect of these schemes.

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Topics: Compensation and benefits, Share-based schemes, SAR, Ind AS 102, GN 18, ESOP

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