The Impact of IFRS 2 "Share-Based Payment" on Malaysian Companies

In the wake of corporate scandals and excessive stock options compensation, International Accounting Standard Board (IASB) has introduced a new accounting standard, IIFRS 2 Share-based Payments. The scope of the standard extends beyond payments to employees, but for the purpose of this study, the focus is only on 'employee stock options'. IIFRS 2 requires a fair value of stock options records calculated on grant date, and recognized as compensation expenses over vesting periods. Prior to the introduction of IIFRS 2, stock options were not recognized and were only disclosed in the notes to the accounts. In Malaysia, the standard is mandatory for all companies listed on or after January 1, 2006. This study assumes the requirement existed in 2003. This study examines the impact of stock options expenses from 2003 to 2005, on the top 100 Malaysian companies. The three year observations show at least 24% of the sample exceeds the 5% materiality threshold on diluted EPS. The sectors that are impacted the most are the Trade/Service and Finance sectors. From the multiple-regression test, this study finds that fair value of stock options have a negative relationship with dividend yields (input of the Black-Scholes Merton (BSM) Model). Most companies in the sample are found to pay dividends and grant stock options at the same time. Therefore, this study suggests that companies need to restructure their compensation plan thus balancing the stock options granted and dividends paid in the future.

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THE IMPLEMENTATION OF FAIR VALUE ON SHORT TERM ASSESMENT OF BIOLOGICAL ASSETS

Journal of Accounting and Business Education ◽

10.26675/jabe.v1i1.6728 ◽

2016 ◽

Vol 1 (1) ◽

pp. 40

Author(s):

Murtianingsih Murtianingsih ◽

Anas Hari Setiawan

Keyword(s):

Market Value ◽

Fair Value ◽

Short Term ◽

Managerial Decision ◽

Accounting Standard ◽

Historical Cost ◽

The Difference ◽

Value Measurement ◽

The Impact ◽

International Accounting Standard

This study aims to identify and analyze the implementation of fair value and the impact of the use of bases the recognition, measurement, and disclosure of the biological assets with the object of research PT. Malindo Feedmill Tbk which further research is also useful for agriculture companies in managerial decision making. This research is descriptive quantitative concluded based on data and clarify the picture of the implementation of fair value is based on International Accounting Standard (IAS) 41 and perform comparative measurements of biological assets PT. Malindo Feedmill, Tbk based acquisition price. From the results of this study concluded that the difference in the material due to fair value measurement that refers to IAS 41 in determining the market value following the fluctuations of the market, but in IAS 41 does not distinguish between fair value treatment against several categories of biological assets. This is certainly less relevant when applied to some types of biological assets, such as short term biological assets at PT. Malindo Feedmill Tbk.Keywords: biological assets, fair value, historical cost, ias 41

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Employee Stock Options And Diluted Earnings Per Share: An Extension

International Business & Economics Research Journal (IBER) ◽

10.19030/iber.v7i2.3218 ◽

2011 ◽

Vol 7 (2) ◽

Author(s):

David T. Doran

Keyword(s):

Stock Options ◽

Market Price ◽

Accounting Standards ◽

Fair Value ◽

Employee Stock Options ◽

Employee Compensation ◽

Earnings Per Share ◽

Service Period ◽

The Impact ◽

Period Model

Firms must currently apply the fair value method in determining the amount of employee compensation incurred in the case of employee stock options. The amount of such compensation is required to be measured as fair value of the equity instrument at the grant date, with compensation expense recognized over the service period under the straight-line method. This compensation expense affects the numerator for purposes of calculating earnings per share (EPS) under generally accepted accounting principles (GAAP). Current GAAP also requires that for purposes of calculating diluted EPS, the treasury stock method be applied where the assumed proceeds from exercise of the optioned shares is used to purchase shares of the firms stock at its average market price of the earnings period. These incremental shares increase the denominator for purposes of calculating diluted EPS. These requirements are consistent across the pronouncements of the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB). This study extends the work of Doran (2005) where a single period model was assumed and found: 1. Application of the fair value method does not double count the impact of compensation recognized, and 2. Applying the treasury stock method where shares are assumed purchased at the average for the period price (instead of end of year price) understates the number of incremental shares (the denominator), which overstates diluted EPS. This paper employs a simple multi period model that assumes a risk free environment with complete certainty in testing the accuracy of GAAP compliant diluted EPS in the case of employee stock options. Consistent with Doran (2005) the results here again indicate that assuming purchase of treasury shares at their average market price of the earnings period understates the EPS denominator. The results of this study also indicate that the reported employee compensation expense is understated. The observed cause of this numerator error is treating the payment for the option (employee service) as if it was received in full at the grant date - as a lump sum (like inventory or some other asset), rather than being received ratably over the employee service period as an annuity. Each of these findings contributes to the observed overstatement of diluted EPS. Correct diluted EPS is observed when the employee service is treated as being received ratably over the service period, and the shares assumed purchased as treasury stock are acquired at the higher period ending market price. The amount of diluted EPS overstatement under both FASB and IASB standards is directly related to the length of the term of the option.

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An Alternative Method Of Accounting For Stock Options

Journal of Applied Business Research (JABR) ◽

10.19030/jabr.v30i2.8415 ◽

2014 ◽

Vol 30 (2) ◽

pp. 439

Author(s):

Thomas Smith ◽

Adrian Valencia ◽

Ara Volkan

Keyword(s):

Stock Options ◽

Intrinsic Value ◽

Market Price ◽

Fair Value ◽

Financial Accounting ◽

Employee Stock Options ◽

Financial Accounting Standards Board ◽

Exercise Price ◽

The Difference ◽

The Impact

Currently, the grant date fair value of employee stock options is expensed over the vesting period. Our study introduces a new valuation approach for stock options and examines the impact of this change on earning per share (EPS) for a sample of firms over the period 2002-2011. The new valuation approach provides data useful to the Financial Accounting Standards Board (FASB) as it determines whether to revise the current option accounting rules. Under the proposed approach, options are valued at their intrinsic value on the grant date (i.e., the opportunity cost or the economic promise associated with the difference between the exercise price of the option and the market price of the stock at each measurement date) and further revalued each reporting date until the options are exercised.

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Discretion in Financial Reporting: The Voluntary Adoption of Fair Value Accounting for Employee Stock Options

Accounting Horizons ◽

10.2308/acch.2004.18.2.97 ◽

2004 ◽

Vol 18 (2) ◽

pp. 97-108 ◽

Cited By ~ 18

Author(s):

Dahlia Robinson ◽

Diane Burton

Keyword(s):

Financial Reporting ◽

Fair Value ◽

Stock Option ◽

Employee Stock Options ◽

Market Returns ◽

Employee Stock Option ◽

Accounting Reports ◽

Voluntary Adoption ◽

The Impact ◽

Is Value

This paper investigates the market reaction to announcements by firms of their decision to adopt the fair value provisions of SFAS No. 123 in accounting for their employee stock option (ESO) expense. Additionally, this paper examines ESO usage and expense of adopting firms and compares the impact of the expense on profitability measures for adopting firms relative to a matched set of control firms. We find a positive and significant abnormal return in the three days around the adoption announcements, suggesting that the decision to expense using the fair value method is value relevant. The positive abnormal announcement returns are mainly attributable to the earlier announcements, consistent with early announcements serving as a credible signal of a commitment to transparency in financial reporting. We find evidence that in the three years prior to the announcement year, adopting firms report significantly higher earnings than control firms yet fail to earn higher market returns, suggesting that adopters stand to benefit the most by improving the market's perception of their accounting reports. We also find that ESO usage, ESO expense, and the impact of ESO expense on profitability are significantly lower for adopters relative to control firms, although the impact of ESO expense is economically significant for 43 percent of the adopters.

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Instructional Case: Worldwide Shipping Corporation Ltd: Early or Late Adoption of a New International Accounting Standard?

Issues in Accounting Education ◽

10.2308/iace.1999.14.2.211 ◽

1999 ◽

Vol 14 (2) ◽

pp. 211-231

Author(s):

Peter Lee ◽

Pearl Tan

Keyword(s):

Financial Reporting ◽

Financial Analysis ◽

Balance Sheet ◽

Financial Statements ◽

Economic Consequences ◽

International Accounting ◽

Accounting Choice ◽

Accounting Standard ◽

The Impact ◽

International Accounting Standard

The management of Worldwide Shipping Corporation Ltd (hereafter “Worldwide Shipping”) is confronted with a dilemma when a new international accounting standard on leases is introduced which contains a transitional provision allowing firms to defer implementation for a period of four years. Students are required to put themselves in the position of managers who have to weigh the adverse impact of early adoption of the new accounting standard against a responsibility for fair financial reporting. Worldwide Shipping is a multifaceted case that can be used as an accounting case study or a financial analysis study. The objectives of the case are threefold. First, it aims to provide students with a better understanding of the impact of off-balance sheet transactions (in this case, sale-leaseback contracts) on a firm's financial statements. Second, it requires students to examine implications of accounting choice on management compensation and debt-contracting costs, as well as the perplexing problem of recognition in financial statements vs. footnote disclosures. By putting students in the position of managers, the case increases students' awareness of the possible economic consequences arising from accounting choice. Third, it provides students with a useful exercise in the mechanics of effecting a change in accounting method using the retroactive method.

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Auditors Reputation : The Impact on Compliance with International Accounting Standard 5 by Quoted Companies in Nigeria

Kuwait Chapter of Arabian Journal of Business and Management Review ◽

10.12816/0018803 ◽

2014 ◽

Vol 3 (12) ◽

pp. 25-40

Author(s):

C. I. Ezugwu ◽

Emmanuel Negedu

Keyword(s):

International Accounting ◽

Accounting Standard ◽

The Impact ◽

International Accounting Standard

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The Effects of Employee Stock Options on Credit Ratings

The Accounting Review ◽

10.2308/accr.2008.83.5.1273 ◽

2008 ◽

Vol 83 (5) ◽

pp. 1273-1314 ◽

Cited By ~ 22

Author(s):

Yen-Jung Lee

Keyword(s):

Stock Options ◽

Credit Rating ◽

Credit Ratings ◽

Fair Value ◽

Cash Flows ◽

Share Repurchases ◽

Credit Rating Agencies ◽

Employee Stock Options ◽

Rating Agencies ◽

Unfavorable Effect

ABSTRACT: This paper examines whether outstanding employee stock options (ESOs), which represent the firm’s contractual obligation to deliver shares upon ESO exercise, affect firms’ credit ratings. I hypothesize that outstanding ESOs play two information roles—(1) suggesting equity infusion, and (2) predicting share repurchases—that help credit-rating agencies evaluate the issuing company’s debt service ability. Consistent with these hypothesized roles, results indicate that the present values of expected cash proceeds and tax benefits from ESO exercise have favorable effects on credit ratings. In contrast, the present value of the expected cost of ESO-related share repurchases has an unfavorable effect on credit ratings and this unfavorable effect is more pronounced for firms with a greater tendency to repurchase shares. The after-tax fair value of outstanding ESOs, which summarizes the effects of the above three ESO-related cash flows, is negatively associated with credit ratings. Taken together, these findings are consistent with credit-rating agencies incorporating the information conveyed by outstanding ESOs regarding potential equity infusion and ESO-related repurchases in their credit risk assessments and assigning lower credit ratings to firms with greater values of outstanding ESOs.

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Valuing employee stock options under SFAS 123R using the Black–Scholes–Merton and lattice model approaches

Journal of Accounting Education ◽

10.1016/j.jaccedu.2007.01.002 ◽

2007 ◽

Vol 25 (1-2) ◽

pp. 88-101 ◽

Cited By ~ 5

Author(s):

Charles Baril ◽

Luis Betancourt ◽

John Briggs

Keyword(s):

Lattice Model ◽

Stock Options ◽

Employee Stock Options ◽

Black Scholes

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A Note On Accounting For Employee Stock Options When Reporting Diluted Earnings Per Share Under The Treasury Stock Method

Journal of Business & Economics Research (JBER) ◽

10.19030/jber.v6i10.2477 ◽

2011 ◽

Vol 6 (10) ◽

Author(s):

David T. Doran

Keyword(s):

Stock Options ◽

A Priori ◽

Market Price ◽

Accounting Standards ◽

Fair Value ◽

Financial Accounting ◽

Employee Stock Options ◽

Financial Accounting Standards Board ◽

Earnings Per Share ◽

Free Environment

Firms must currently apply the fair value method in determining the amount of employee compensation incurred in the case of employee stock options.  Current GAAP also requires that for purposes of calculating diluted earnings per share (EPS), the treasury stock method be applied where the assumed proceeds from exercise of the optioned shares is used to purchase shares of the firm’s stock at its average market price of the earnings period.  These incremental shares increase the denominator for purposes of calculating diluted EPS.  These requirements are consistent across the pronouncements of the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB).  This study extends the work of Doran (2005) and Doran (2008).  These previous studies found that applying the treasury stock method where shares are assumed purchased at the average for the period price (instead of end of year price) understates the number of incremental shares (the denominator), which overstates diluted EPS.  However, these previous works assumed that no shares were actually purchased for the treasury during the earnings period.  The FASB indicates one reason that the average for the period price is appropriate is because if treasury shares purchases were to occur, “the shares would be purchased at various prices, not at the price at the end of the period.”  This study tests the notion that the average for the period price is appropriate under circumstances where the firm actually purchases shares for the treasury at its average market price during the earnings period.  This paper employs a simple one period model that assumes a risk free environment with complete certainty.  The model allows comparison of computed EPS with an a priori known, correct amount.  Consistent with Doran (2005) and Doran (2008), the results here again indicate that assuming purchase of treasury shares at their average market price of the earnings period understates the EPS denominator which results in EPS overstatement.  Correct diluted EPS is derived when the shares assumed purchased under the treasury stock method are acquired at the higher period ending market price.

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Requirements for the possibility of applying international accounting standards on financial instruments-an applied study in the national bank of Baghdad

Journal of Raparin University ◽

10.26750/vol(7).no(1).paper11 ◽

2019 ◽

Vol 7 (1) ◽

pp. 142-180

Author(s):

Dilan Abdullah Mohammed ◽

Basira Majeed Najm

Keyword(s):

Financial Markets ◽

Interest Rates ◽

Financial Statements ◽

Fair Value ◽

Interest Rate Risk ◽

International Accounting ◽

Financial Instruments ◽

Accounting Standard ◽

Important Place ◽

International Accounting Standard

The reality today proves that growth and success have become the share of financial markets that have learned how to read the road map and achieve leadership by investing in the so-called derivatives, where the center of gravity in financial markets has shifted from relying on simple financial instruments to relying on Great for innovation and creativity to create innovative financial products that cover the needs of investors. The issue of derivatives has become an important place in global markets. The importance of this study is illustrated by the nature of the accounting treatment of these instruments and how they are disclosed in the annual financial statements of companies and banks dealing with them according to the international accounting standard No. (32) and how to recognize and measure the financial instruments, and disclose them according to the International Accounting Standard No. (7-9), in order to clarify the nature of the analysis required to determine the correct accounting processing when using these instruments, as the financial statements published by the dealers of financial instruments and provided to end users must include sufficient information about them with To clarify the risks for which the transactions were carried out, the extent to which such information is covered (is it for hedging purposes or for trading purposes), the degree of risk and how to account for it, and through this process has been concluded among the most important risks to which the bank is exposed is the risk of changing interest rates, given that the net Interest income constitutes a large percentage of the bank's returns, the interest rate risk is particularly important, as the case of high interest rates creates for banks the risk of paying higher rates on deposits for the future and other bank demands compared to what they get from their glory, and the situation is quite the opposite when the Shame interest. The study recommends that the bank dealing in derivative financial instruments distinguish between the profitability of trading in these and other investment instruments, and for the instruments used for the purposes of hedging the risk of interest rates, as well as the bank to clarify the accounting methods used The bank must disclose the fair value of both hedge stake and hedge funds.

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