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Unformatted text preview: ts requirement to apply the fair value based
method, Merrill Lynch states that the grant date is the appropriate date for
measuring stock-based transactions. The amount recognized should not be
spread out over the vesting period, but charged to the income in full at the grant
Merrill Lynch opposes the application of option pricing models to measure the
stock-based compensation expense as the estimated amount is not what is
realizable to the employee. It believes the valuation using a modified option
pricing model would result in an overstated expense in the financial statements.
4.3.4 The Shell Petroleum Company
The Shell Petroleum Company (Shell) is a leading global energy company,
exploring, producing and refining oil and gas. It is also active in renewable
energy, having growing businesses in power generation and a diverse portfolio
of products in chemicals businesses (www.shell.com)
As a multi-national group, Shell favors the harmonization of accounting
standards around the world. Therefore, it says that if the provisions of the
Discussion Paper will not be recognized by other standard-setting bodies (and it
doubts that FASB will require the mandatory adoption of fair value based
method of accounting for stock-based compensation expense) it will put
European companies in a more disadvantaged position.
While Shell admits that the issue of options can have an observable value,
which might be used as the substitute for the value of services provided by
employees, it also deems that the cost to the company is not necessarily the
same as the economic value to the employee.
The company also doubts the ability of option pricing models to provide
relevant valuation of stock options granted. In conclusion Shell states that
64 accrual of stock-based compensation expense in the period before business
success and true option value is established could eliminate start-up capital and
drive viable companies into bankruptcy.
DaimlerChrysler is one of the world's leading automotive, transportation and
services companies. It produces passenger cars, commercial vehicles and offers
financial and other services (www.daimlerchrysler.com).
In general, DaimlerChrysler agrees with the proposal of IASB for accounting
for stock-based compensation. Stock options granted should be measured at fair
value and should be charged to net income. However, the company says its
final approval will depend on whether its competitors, both in the capital
markets and in their business, will have to apply the same accounting rules for
stock-based payments. If companies in the same line of business use different
measurement methods, it will only end in the presentation of misleading
From the company’s point of view, the grant date would better reflect the value
of the stock-based payments as this is the date when all parties agree to the
contract and each party’s basis to agree is the market value at a grant date. If,
subsequently, the number of shares that actually vest is greater or less than
originally expected, there should not be any adjustments made to the
transaction amount, so long as these changes do not occur during the vesting
4.3.6 Association of German Banks
The Association of German Banks represents the interests of the private
commercial banks in Germany. The members of the Association are both small
and big banks, banks operating worldwide and regional banks (www.germanbanks.com).
The Association of German Banks does not agree with the proposed accounting
for share-based payments. It proposes instead that the stock option plans not be
recognized in financial statements until options are exercised. The reason for
such treatment of stock option plans is that the issue of stock options to
employees does not affect the entity itself, but the shareholders only. It does not
result in any cash payments to employees, and the recognition of expense
would be fictitious. 65 The proposals of IASB set in the Discussion Paper would lead to a considerable
disadvantage for all companies applying International Accounting Standards
compared to those companies, which prepare their financial statements in
accordance with U.S. GAAP. Moreover, considering the complex structure of
employee stock option plans, it will often be impossible to calculate the fair
value of options granted. The Association therefore considers the intrinsic
value based method as the only acceptable and reliable method of measuring
the stock-based compensation expense.
Nokia is the world leader in mobile communications industry. It is the leading
supplier of mobile phones and mobile, fixed and broadband networks
Nokia strongly opposes the proposal of recognizing stock-based compensation
expense using the fair value based method. In the company’s opinion “…it
would be totally unacceptable for enterprises preparing their financial
statements a ccording t o I AS t o h ave t o c omply w ith m ore s tringent
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This document was uploaded on 10/31/2013.
- Fall '13