BC166 This still leaves the question whether there is a need for further

Bc166 this still leaves the question whether there is

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BC166     This still leaves the question whether there is a need for further adjustment for the combined  effect of being unable to exercise or transfer the share option during the vesting period. In  other words, the inability to exercise a share option does not, in itself, appear to have a  significant effect on its value. But if the share option cannot be transferred and cannot be 
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exercised, and assuming that other derivatives are not available, the holder is unable to extract  value from the share option or protect its value during the vesting period. BC167     However, it should be noted why these restrictions are in place: the employee has not yet 'paid'  for the share option by providing the required services (and fulfilling any other performance  conditions). The employee cannot exercise or transfer a share option to which he/she is not yet  entitled. The share option will either vest or fail to vest, depending on whether the vesting  conditions are satisfied. The possibility of forfeiture resulting from failure to fulfil the vesting  conditions is taken into account through the application of the modified grant date method  (discussed in paragraphs BC170–BC184). BC168     Moreover, for accounting purposes, the objective is to estimate the fair value of the share  option, not the value from the employee's perspective. The fair value of any item depends on  the expected amounts, timing, and uncertainty of the future cash flows relating to the item. The  share option grant gives the employee the right to subscribe to the entity's shares at the  exercise price, provided that the vesting conditions are satisfied and the exercise price is paid  during the specified period. The effect of the vesting conditions is considered below. The effect  of the share option being non-exercisable during the vesting period has already been  considered above, as has the effect of non-transferability. There does not seem to be any  additional effect on the expected amounts, timing or uncertainty of the future cash flows  arising from the combination of non-exercisability and non-transferability during the vesting  period. BC169     After considering all of the above points, the Board concluded that the effects of early exercise,  because of non-transferability and other factors, should be taken into account when estimating  the fair value of the share option, either by modelling early exercise in a binomial or similar  model, or using expected life rather than contracted life as an input into an option pricing  model, such as the Black-Scholes-Merton formula.
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