IFRS 2 actuarial valuations of share-based payments benefits
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
clients reduce income statement volatility – especially when non-actuarial calculation techniques
utilized in past financial periods.
The accounting standards require the cost of share options to be assessed at “fair value” as at the
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.
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.
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
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
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.