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Should employee share options be expensed in an entity’s financial statements?

Should employee share options be expensed in an entity’s financial statements? This paper investigates the debate as to whether employee share options (ESOs) should be expensed in an entity’s financial statements as required by the IASB’s IFRS 2 – Share‐based payment (2004). The paper presents arguments for and against expensing ESOs, demonstrating that compensation of employees via ESOs is a bona fide expense in terms of the recognition and measurement criteria of the IASB Framework. It concludes that, the substance of an ESO transaction is that the entity pays an employee for his services, albeit with a different financial instrument. Consequently, the accounting treatment of such compensation should be the same as for any other payment of services of an employee. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Meditari Accountancy Research Emerald Publishing

Should employee share options be expensed in an entity’s financial statements?

Z.Y. Sacho; H.C. Wingard
Meditari Accountancy Research , Volume 12 (2): 24 – Oct 1, 2004
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References (18)

Publisher
Emerald Publishing
Copyright
Copyright © 2004 Emerald Group Publishing Limited. All rights reserved.
ISSN
1022-2529
DOI
10.1108/10222529200400020
Publisher site
See Article on Publisher Site

Abstract

This paper investigates the debate as to whether employee share options (ESOs) should be expensed in an entity’s financial statements as required by the IASB’s IFRS 2 – Share‐based payment (2004). The paper presents arguments for and against expensing ESOs, demonstrating that compensation of employees via ESOs is a bona fide expense in terms of the recognition and measurement criteria of the IASB Framework. It concludes that, the substance of an ESO transaction is that the entity pays an employee for his services, albeit with a different financial instrument. Consequently, the accounting treatment of such compensation should be the same as for any other payment of services of an employee.

Journal

Meditari Accountancy Research – Emerald Publishing

Published: Oct 1, 2004

Keywords: Call option; Expenses; Compensation; Recognition vs. disclosure; Economic distortion; Share market bubble; Employee share option

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