Stock option compensation: impact of expense recognition on performance indicatiors of non-domestic companies listed in the U.S

• Published in: Journal of international accounting, auditing & taxation Vol. 13; no. 1; p. 21
• Main Authors: Street, Donna L, Cereola, Sandra
• Format: Journal Article
• Language: English
• Published: Greenwich Elsevier Science Ltd 01.01.2004
• Subjects: Accounting standards; Acknowledgment; Business expenses; Companies; Compensation; Fair value; IFRS 2; Impact analysis; International Financial Reporting Standards; Liaison; Manycountries; Multinational corporations; Performance indicators; Stock options; Studies; United States > US
• ISSN: 1061-9518; 1879-1603

The IFRS 2, Share-based Payment, requires that companies recognize the fair value of employee stock options as an expense. To ascertain the impact recognition will have on companies domiciled in countries subject to accounting standards issued by the IASB's liaison standard setting partners, this research examines the pro forma stock option disclosures provided in Form 20-F by Australian, British, Canadian, French, German, Japanese, and Irish companies. The findings indicate the average impact of expense recognition on diluted EPS will be approximately 40% and will be material at a 5% level for the majority of the companies. The impact varies significantly by country. The findings indicate that absent requirements that stock compensation expense be recognized, a material upward bias will be reflected in performance indicators of many non-U.S. companies and cross-border comparability will be impaired.