If a company makes any share based payments, under current accounting standards (FRS 20), it must recognise a charge in the profit and loss account equal to the fair value of the payment.

The definition of share based payments in FRS 20 is wide reaching and includes:-
• Granting of options (including both HMRC approved and unapproved schemes)
• Direct awards of shares to employees
• Bonus awards to employees which include share options, share or a cash bonus which is linked to achieving performance targets in relation to the company’s share price.

The valuation of options is an extremely complicated technical area of accounting that requires particular expertise. 

At WMT, we have detailed knowledge of the requirements of FRS 20 and understand the statistical principles underlying the various valuation techniques such as Binomial, Monte Carlo and Black-Scholes.

We have carried out numerous FRS 20 valuations; for each mandate, we produce a tailored report for discussion with the directors of the business that includes:-

• Guidance on the requirements of FRS 20
• Consideration and explanation of the most appropriate valuation methodology
• Valuation and disclosures issues
• Key assumptions
• Sensitivity of the model and the effect of a change in the assumptions
• The resulting charge to the profit and loss account

It is unlikely that your existing auditors will be able to produce the valuations and calculations required for FRS 20 as they are unable to audit their own work as this creates a conflict of interest.  Our tailored independent report can be discussed with the company and contains all the necessary figures and explains the rationale behind the calculations.  The report can then be audited.

In addition to this, we can assist in the design of share options schemes and advise from the outset of the future impact on your profit and loss account and balance sheet of the proposed share options scheme.

To find out more about our FRS 20 service please contact Andrew Williamson on 01727 838 255.