Employee Stock Options
An overview of the financial accounting standards for companies that issue share-based payments such as employee stock options (ESOs) or share appreciation rights (SARs) are outlined below. Each overview contains a short description of the accounting regulation as it applies to “valuation" only. It does not specify the required methods for share-based payments, nor how taxes are treated. For a more complete and detailed description of each standard, it is recommended to visit the respective issuer’s website.
IFRS 2 |
FAS 123/123R |
CICA 3870 |
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| Title | Share-Based Payment | FAS 123: Accounting for Stock-Based Compensation FAS 123R: Share-Based Payment |
Stock-Based Compensation and Other Stock-Based Payments |
| Issuer | International Accounting Standards Board (IASB) | Financial Accounting Standards Board (FASB) | Canadian Institute of Chartered Accountants (CICA) |
| Region | International | USA | Canada |
| Effective | January 1, 2005 | FAS 123: Dec 1, 1995 FAS 123R: June 1, 2005 |
January 1, 2002 |
| Overview | IFRS 2 requires that all share-based payments be recognised as an expense, at fair value measurement unless, for equity-settled transactions, that fair value cannot be estimated reliably. IFRS 2 encompasses the issuance of shares, or rights to shares, in return for services and goods. Examples include share appreciation rights, employee share purchase plans, etc. | FAS 123R mandates that all entities recognize the cost of employee stock options (ESOs) in their financial statements at fair value measurement. The same applies to other share-based payment awards in the form of options, shares, and share appreciation rights (SARs) granted to employees. The statement permits entities to use any option-pricing model but prefers lattice models. | CICA section 3870 establishes recognition, measurement, and disclosure requirements for stock-based transactions. The section requires the use of the fair value-based method of accounting for all non-employee and employee stock-based transactions. Stock options require more complex valuation models (i.e. the Black-Scholes model) to estimate fair value. |
| How FINCAD can help | FINCAD solutions contain various option-pricing models including Black-Scholes, lattice, and Hull-White basic and advanced models for valuing employee stock options. The Excel solution also contains complete ESO workbooks. Applicable FINCAD solutions:
Click here to request a trial of one of the above solutions. |
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We hope that such information will assist you, but it should not be used or relied upon as a substitute for your own independent research. For a more comprehensive view of the standards/requirements, please visit the respective issuer's website.
