Employee Stock Options

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Employee Stock Options

IFRS 2 and Topic 718 (FAS 123R)

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 Topic 718 (FAS 123R)
Title Share-Based Payment Topic 718 Stock Compensation
Issuer International Accounting Standards Board (IASB) Financial Accounting Standards Board (FASB)
Region International USA
Effective January 1, 2005 June 1, 2005
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. Topic 718 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.
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 solutions also contain complete ESO workbooks.

Applicable FINCAD solutions:

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We hope that this 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. 

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