A plan to change UK accountancy regulations so that the potential cost of share option schemes are reflected in profit and loss accounts has caused an outcry among software companies and threatens a replay of the row that forced the US Financial Accounting Standards Board to back down after it issued similar proposals in 1995.
New rules to be issued by the UK Accounting Standards Board (ASB) in the middle of next year are expected to recommend that share option schemes should have an impact on the profit and loss account – which would instantly lower the reported profits of many IT companies. In the US, it was estimated that if the proposed rules on share options had been implemented then reported earnings would decrease by an average of 12% across the IT sector (CI No 3,534).
The prospect of the changes has outraged industry trade organization the Computing Services and Software Association (CSSA). It sees struggling start-ups, forced to rely on share options when revenue is insufficient to pay sizeable wage packets, as being particularly hard-hit. That, it argues would be bad news for the growth of the industry.
Accountants have long argued for a more transparent system, so that investors can see the impact of share option schemes, and direct comparisons can made between those companies which employ them and those who donÆt.
What would disadvantage UK companies would be the imposition of new standards on share options on purely a local basis. With discussions underway towards global accounting standards, the ASB says it is working with international bodies to get a coordinated approach.
