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IFRS 2, Share-based Payment, requires companies to value all share-based payments for goods and services as an expense in their profit and loss statement. As IFRS 2, Share-based Payment, acknowledges that the valuation of the share-base payment may be complex, the IASB demands that expert advice be sought by companies accounting for complex share-based payments. If the amounts are material, auditors usually recommend that companies seek an independent share option valuation for compliance with IFRS 2, Share-based Payment.

Intangible Business is an independent valuation specialist, with deep experience of share option valuation under IFRS 2, Share-based Payment. Although terms geared to the value of a company’s equity may also be found in licensing, supply and distribution contracts, incentive options issued to employees are the most common kind of share-based payment that require valuing under IFRS 2.

Share-based payments issued to employees differ from options commonly traded by investors in several important ways:

• Employee share-based payments often have vesting conditions and required service periods which must be fulfilled in order to be eligible for exercise.
• Share-based payments issued to employees are often exercised early, sub-optimally, as the employee is typically an undiversified investor and liquidity may be a concern. Recognition of a truncated maturity also acknowledges the lack of transferability of the share-based payment.
• Employee share-based payments are commonly forfeited in the event that the holder ceases to be employed by the company.

The IASB recognises these differences in IFRS 2, Share-based Payment. Taking these assumptions into account when valuing share-based payments under IFRS 2, Share-based Payment may legitimately, significantly reduce the expense of an option grant.

Intangible Business has valued many types of share-based payments under IFRS 2, Share-based Payment, from the simple to the exotic. Our experience of IFRS 2, Share-based Payment requirements enables us to choose the simplest share-based payments valuation model which reflects all relevant and allowable assumptions. This saves fees and supports the lowest expense to your profit and loss statement.

If you have any questions, or would like help valuing your employee share or stock options under IFRS 2, please call us on + 44 (0)20 7089 9236 or send us an email.