UK - Proposed changes to share option accounting rules will trim up to 5% from the earnings of FTSE100 companies, Lane, Clark & Peacock warns.
Under current rules, companies do not have to enter any charges into their annual accounts for their share option schemes.
But the International Accounting Standards Board wants to introduce new rules which the consultant described as “FRS17 for share options”.
The accounting standards board is still working on Exposure Draft 2: Share Based Payment – its second version of the standard.
The changes – which are due to come into effect from the beginning of next year – will, in their current form, force firms to highlight the full cost of their share programmes on their balance sheets.
LCP consultant Ian Gamon estimates that this could reduce the earnings of large FTSE100 companies that offer share plans by between 2%-5%.
He said: “What we anticipate is that share options will have to be expensed at fair value, whereas in the past, they have been taken at intrinsic value, which usually costs nothing.
“For the majority of companies, they have not had to recognise the cost under the existing accounting standard.
“Under the international accounting standards fair value will have to be recognised. Some of the largest companies in the FTSE100 will see an impact on earnings of as much as 2%–5%.”
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