Why does my company share scheme need a valuation?
If a company makes any share based payments, under current accounting standards, 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 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.
Valuing share options is a complicated technical area of accounting. We are experienced in interpreting the accounting standards that are relevant and apply valuation techniques such as Binomial, Monte Carlo and Black-Scholes.
WMT’s support and advice includes:
• Guidance on the accounting standards
• 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
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.
Do you still have questions? Get in touch with our business consulting team to find out more about how they can help you.