While shell admits that the issue of options can have

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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 date. 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. 4.3.5 DaimlerChrysler 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 results. 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 period. 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. 4.3.7 Nokia Nokia is the world leader in mobile communications industry. It is the leading supplier of mobile phones and mobile, fixed and broadband networks (www.nokia.com). 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 requirements th...
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This document was uploaded on 10/31/2013.

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