EU Companies to Book Stock Options

The European Union announced Monday it would begin immediately enforcing new accounting rules that require listed companies to book employee stock options as current expenses. The rule was endorsed last December by the 25 EU governments. This week the European Parliament and the European Commission approved the measure, clearing the way for instituting the new method of accounting. Previously companies were only required to disclose stock options in notes to the financial statements.

Click Here

The Associated Press reports that the new rule is retroactive to January 1, 2005. Approximately 8,000 European companies are affected by the ruling. Technology and telecommunications companies may be hardest hit as those types of companies rely heavily on using stock options as incentives.

Charlie McCreevy, EU internal market and services commissioner, stated, "Granting stock options can be a very effective way for companies to motivate managers and staff, but like any other form of remuneration, it has to be considered as an expense."

The new ruling, International Financial Reporting Standard (IFRS) No. 2 on Share-based Payment, does not specifically state which valuation models should be used for stock options, but does describe the factors that should be taken into account when estimating the fair value of such payments. Additional clarification is expected to be issued by the European Commission within the next two years.

The Financial Accounting Standards Board (FASB) in the United States is preparing to implement a similar requirement in this country. The option-expensing rule is set to become effective for financial statements dated after June 15, 2005. FASB has been working closely with the International Accounting Standards Board (IASB) to create global standards for valuing stock option.

You may like these other stories...

By Jason Bramwell The board of trustees of the Financial Accounting Foundation (FAF) finalized a new policy on November 19 that provides the Governmental Accounting Standards Board (GASB) with direction on what...
By Jason Bramwell The Governmental Accounting Standards Board (GASB) is now offering a free online toolkit designed to assist preparers and auditors of state and local government pension plans with implementing new...
By Steven Brenner With the news that the Financial Accounting Standards Board (FASB) – in conjunction with the International Accounting Standards Board (IASB) – intends to formally move...

Upcoming CPE Webinars

Apr 22
Is everyone at your organization meeting your client service expectations? Let client service expert, Kristen Rampe, CPA help you establish a reputation of top-tier service in every facet of your firm during this one hour webinar.
Apr 24
In this session Excel expert David Ringstrom, CPA introduces you to a powerful but underutilized macro feature in Excel.
Apr 25
This material focuses on the principles of accounting for non-profit organizations' revenues. It will include discussions of revenue recognition for cash and non-cash contributions as well as other revenues commonly received by non-profit organizations.
Apr 30
During the second session of a four-part series on Individual Leadership, the focus will be on time management- a critical success factor for effective leadership. Each person has 24 hours of time to spend each day; the key is making wise investments and knowing what investments yield the greatest return.