The so-called G4+1' accounting body, composed of board members and senior staff of the standard-setting bodies of Australia, Canada, New Zealand, the UK and the USA, and the International Accounting Standards Committee, in a discussion paper, Accounting for Share-based Payment, proposed that companies fully account for the share schemes, as they are called in the United Kingdom, as part of employees' remuneration as a cost.

The paper proposes that share options, like salaries, should be expensed. The proposal reportedly risks a major backlash from companies worried about their bottom line and employee turnover. Stock option plans are recognized in a limited way already in corporate accounts in many countries, including the U.S., but the G4+1 proposal could take this much further and lead to much bigger charges in the profit and loss accounts, Reuters said.

The option plans, where staff are typically granted options over shares in their employer at a generous discount, have soared in popularity as companies struggle to motivate and retain their staff, especially among dot.com companies, which have a special fondness for share schemes because remuneration by way of shares is kinder on cash flow than conventional pay packets, the report noted.

Refuting the argument that the change will prevent firms from using the schemes, ASB chairman David Tweedie reportedly said, "These deals should stand or fall on their own economic merits -- not on the basis that the accountant has looked the other way.''

The paper proposes that: "a transaction whereby an entity obtains goods and services from other parties, including employees and suppliers, with payment taking the form of shares or share options issued by the entity to those other parties, should be recognized in the financial statements, with a corresponding charge to the income statement when those goods or services are consumed; such a transaction should be measured at the fair value of the shares or options issued."

"In most cases, an option-pricing model should be applied to establish the fair value of an option," the paper continues. "Vesting date is the appropriate measurement date, i.e. the date at which the fair value of the shares or options issued should be established, for the purposes of measuring the transaction amount…an estimate of the transaction amount should be accrued over the performance period."

The paper also addressed the treatment of lapsed options, options that are repriced or otherwise modified, employee share plans with cash alternatives and share appreciation rights.

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