Accountancy and valuation

Accounting

Companies normally need to record share-based payments as an expense in their profit and loss accounts—although less onerous requirements can apply for small and micro-entities.

For entities that prepare financial statements under international accounting standards, the share-based payment (SBP) accounting standard (International Financial Reporting Standards (IFRS) 2 (IFRS 2)) sets out the accounting rules for the awards of share options and other equity-based employee incentives. Very similar accounting rules apply for entities that report under UK domestic accounting standards, and the main relevant domestic standard is now Financial Reporting Standard (FRS) 102 (FRS 102).

These SBP standards distinguish between equity-settled SBP transactions and cash-settled SBP transactions and contain the accounting rules for these two quite different regimes.

An SBP’s accounting treatment depends upon whether it is paid in shares or cash—and if there is a choice as to whether the award will...