UK accounting standards
now require that companies adjust their reported profits to reflect the expensing of employee share awards such as share options (applies from 1st January 2006 for smaller companies).
To comply with the standard,
companies must adopt special estimating methods which require advanced mathematical and statistical techniques. Smaller companies will not be able to develop or implement these techniques on their own. Auditors cannot assist their clients in this area because of potential conflict with their auditing role.
The RM2 Partnership
has developed an options pricing model which exceeds the requirements of the accounting standard. Based on the binomial lattice technique, the model is considerably more flexible than formulaic solutions such as Black-Scholes and can be easily adapted for special situations. It is transparent, easy to audit and inexpensive. The RM2 option pricing model is offered as part of RM2's overall share scheme administration services.
For further details
please download our fact sheet: expensing employee share awards
Further help and information on employee share schemes
For detailed guidance on all aspects of the design, implementation and administration of employee share schemes see "Employee Share Schemes: a Guide for Directors" (2006/07 edition). You can view the Guide online or order a free copy here. Or ask for a free consultation.
