ZAQ Actuarial

ZAQ performs more than 100 GRAP 25 / IAS 19 valuations per annum to clients across South Africa and Namibia. We have been performing these valuations since 2012.
Since 1 January 2001, the South African Institute of Chartered Accountants (SAICA) requires all companies that sponsor employee benefits to report under AC116 (Revised) their associated costs and liabilities. These employee benefits include the following:

Defined Benefit Pension Funds;
Post-retirement Medical Aid Benefits/Subsidies;
Long-service Leave/Awards/Bonuses;
Ex-gratia Pension Benefits; and
Severance Pay Benefits.

The total expected future cost of these benefits is determined using an actuarial valuation. The actuarial valuation involves making assumptions about discount rates, expected rates of return on assets, mortality rates and medical cost inflation. Our service includes the following:

Collection of the relevant data required (and reasonability checks on the data);
Conducting an investigation into the benefit policy documents;
Calculating liabilities that reflect current, market-related assumptions;
Roll forward of the relevant disclosures;
Calculation of the balance sheet asset/liability to be disclosed;
Calculation of the various components of the income statement expense (service cost, interest cost and expected return on assets);
Production of a detailed report that summarises and explains the results obtained, as well as detailing the relevant items of disclosure;
Consultation on the numbers produced is also available.

ZAQ has assisted more than 20 listed clients with their IFRS 2 valuations. ZAQ helps its clients to ensure their share-based payments are valued accurately. We frequently have the privilege of helping our clients reduce income statement volatility – especially when non-actuarial calculation techniques were utilized in past financial periods.

The accounting standards require the cost of share options to be assessed at “fair value” as at the date that the options are granted. The resulting cost is then recognised in the company accounts over the period that the employee earns the award. This period is known as the vesting period.

Our team of share valuation experts and actuaries, through the extensive knowledge of modelling they have gained from many years of working in the financial services market, are able to tailor models to take account of factors unique to your scheme. There are typically three valuation models used to value share-based payments – the Black-Scholes model, the Binomial model and the Monte Carlo model.

At ZAQ we have developed versions of all 3 models. This means we can provide the most cost effective and appropriate solution to meet the specific features of your share plans.

The result of any option pricing model depends on the assumptions adopted, so it is important that you understand the sensitivity of the results to the assumptions used. We therefore provide results using a range of assumptions to aid such understanding and facilitate discussion.

In addition to calculating fair values for the purposes of your accounts we are happy to help in providing indicative fair values for proposed awards. This means that we can assist in the design process by providing advice on how different performance conditions and other design aspects will affect the disclosed accounting charge. We can also assess “true” fair values allowing for non-market conditions to aid determination of the number of awards to be granted.

It is important that your employees understand how valuable their share-based benefits can be. We can assist you in this process by helping you communicate the value of the benefits to your employees.

How ZAQ goes about the valuation process:

We begin our work by conducting a review of the financial statements and the terms and conditions of each of the share schemes.
Once we have decided upon the valuation method to be used for a particular scheme, our actuarial team then identifies the most appropriate valuation model. Depending on the valuation method finally decided upon, this may include assumptions on matters such as performance measurement and staff turnover.
The models we use enable us to determine draft accounting entries for the current period in concern, together with comparatives for the preceding period. We also indicate the sensitivity of our results to changes in the assumptions and inputs underlining the model.
During, and at the end of the assignment, the team is available to discuss its findings with you, the client.