Share-based compensation is a common method to incentivize, or to simply "lock in", key employees. Using share-based payments to pay other key suppliers can also be an effective method for early-stage businesses to reduce cash outflow.
It's challenging to implement IFRS 2 Share-based Payments, mainly because of its complexity, and because most companies don't make such deals very often, so they're not familiar with the rules.
Even small changes in an agreement can lead to drastically different accounting treatment, which means you can make mistakes if you don't read it properly.
Farahat & Co takes a look at some areas that commonly cause share-based payments to be hard to account for.
Are They Worth It?
Paying Suppliers Besides Employees
A share-based payment to an employee is valued at the time of grant, and is most likely valued using a Black Scholes, Monte Carlo, or Binomial model.
But it is a common mistake to apply these valuation techniques to payments made to others than employees. Examples include broker payments, bank transfers, or payments for goods or services.
As a result of IFRS 2, if a share-based payment is issued to someone other than an employee, the consideration should be allocated according to the fair value of the goods or services received rather than the fair value of the shares or options issued.
A fair value of the equity instruments issued should only be used when the fair value of the goods or services received cannot be reliably determined.
Using it to determine what expenses to recognize may not be the best method. The fair value should be recognized as an expense when the supplier also supplies the same or similar goods or services for a cash price.
Which Standards Apply to This
Using shares to settle liabilities
In uncertain economic times, it can make sense to settle liabilities with an entity's own shares, particularly if cash is needed to preserve it. If the agreement to settle a liability in shares is reached at a later date, the accounting treatment will differ.
IFRS 2 Share-based payments would apply to arrangements with an option or requirement for share-based payment, while IFRS 9 Financial Instruments would apply to arrangements involving financial instruments (for instance, a convertible debt issue).
IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments applies when a liability is originally intended to be settled in cash, but later agreed to be settled through the issue of shares
The scope of IFRIC 19 is limited in that it does not apply to transactions entered into by shareholders in their capacity as shareholders. Such transactions would be accounted for as equity.
In order to comply with IFRS 2, a charge only needs to be made for goods and services received at fair value. Under IFRIC 19, however, any difference between the fair value of equity instruments issued and the carrying value of the financial liability is accounted for in the income statement.
In Which Circumstances Is A Loan Not A Loan?
Low-recourse loan arrangements
The practice of providing directors with limited recourse loans for the purpose of acquiring shares is common for many companies. A typical contract involves the company loaning the employee money, who then uses the funds to buy shares of the company.
Once the loan has been repaid, the shares will be held in trust for the employee. It is a limited-recourse loan, so if the company fails to make payments, it will only be able to use its issued shares.
The most common mistake is to treat the arrangement as a loan and record a loan receivable once the shares are issued. As a result of such an arrangement, the employee has some degree of control over the amount of stock he or she receives. Since the share price has increased, they have a greater chance of repaying the loan and will therefore enjoy the increased share price of the entity.
However, they may choose to return the shares rather than paying back the loan. The recognition of a loan receivable would not be appropriate because the entity that issued the loan has no contractual right to receive any cash.
In accounting terms, this arrangement should be viewed as a grant of stock options, where the option is regarded as having been exercised after the loan has been repaid.
Audit Firms in Dubai recommend that speak with your local RSM adviser about share-based payment accounting.
Online Threat Alerts Security Tips
Pay the safest way
Credit cards are the safest way to pay for online purchases because you can dispute the charges if you never get the goods or services or if the offer was misrepresented. Federal law limits your liability to $50 if someone makes unauthorized charges to your account, and most credit card issuers will remove them completely if you report the problem promptly.
Guard your personal information
In any transaction you conduct, make sure to check with your state or local consumer protection agency and the Better Business Bureau (BBB) to see if the seller, charity, company, or organization is credible. Be especially wary if the entity is unfamiliar to you. Always call the number found on a website’s contact information to make sure the number legitimately belongs to the entity you are dealing with.
Be careful of the information you share
Never give out your codes, passwords or personal information, unless you are sure of who you're dealing with
Know who you’re dealing with
Crooks pretending to be from companies you do business with may call or send an email, claiming they need to verify your personal information. Don’t provide your credit card or bank account number unless you are actually paying for something and know who you are sending payment to. Your social security number should not be necessary unless you are applying for credit. Be especially suspicious if someone claiming to be from a company with whom you have an account asks for information that the business already has.
Check your accounts
Regularly check your account transactions and report any suspicious or unauthorised transactions.
Don’t believe promises of easy money
If someone claims that you can earn money with little or no work, get a loan or credit card even if you have bad credit, or make money on an investment with little or no risk, it’s probably a scam. Oftentimes, offers that seem too good to be true, actually are too good to be true.
Do not open email from people you don’t know
If you are unsure whether an email you received is legitimate, try contacting the sender directly via other means. Do not click on any links in an email unless you are sure it is safe.
Think before you click
If an email or text message looks suspicious, don’t open any attachments or click on the links.
Verify urgent requests or unsolicited emails, messages or phone calls before you respond
If you receive a message or a phone call asking for immediate action and don't know the sender, it could be a phishing message.
Be careful with links and new website addresses
Malicious website addresses may appear almost identical to legitimate sites. Scammers often use a slight variation in spelling or logo to lure you. Malicious links can also come from friends whose email has unknowingly been compromised, so be careful.
Secure your personal information
Before providing any personal information, such as your date of birth, Social Security number, account numbers, and passwords, be sure the website is secure.
Stay informed on the latest cyber threats
Keep yourself up to date on current scams by visiting this website daily.
Use Strong Passwords
Strong passwords are critical to online security.
Keep your software up to date and maintain preventative software programs
Keep all of your software applications up to date on your computers and mobile devices. Install software that provides antivirus, firewall, and email filter services.
Update the operating systems on your electronic devices
Make sure your operating systems (OSs) and applications are up to date on all of your electronic devices. Older and unpatched versions of OSs and software are the target of many hacks. Read the CISA security tip on Understanding Patches and Software Updates for more information.
What if You Got Scammed?
Stop Contact With The Scammer
Hang up the phone. Do not reply to emails, messages, or letters that the scammer sends. Do not make any more payments to the scammer. Beware of additional scammers who may contact you claiming they can help you get your lost money back.
Secure Your Finances
- Report potentially compromised bank account, credit or debit card information to your financial institution(s) immediately. They may be able to cancel or reverse fraudulent transactions.
- Notify the three major credit bureaus. They can add a fraud alert to warn potential credit grantors that you may be a victim of identity theft. You may also want to consider placing a free security freeze on your credit report. Doing so prevents lenders and others from accessing your credit report entirely, which will prevent them from extending credit:
- Equifax
- Experian
- TransUnion
Check Your Computer
If your computer was accessed or otherwise affected by a scam, check to make sure that your anti-virus is up-to-date and running and that your system is free of malware and keylogging software. You may also need to seek the help of a computer repair company. Consider utilizing the Better Business Bureau’s website to find a reputable company.
Change Your Account Passwords
Update your bank, credit card, social media, and email account passwords to try to limit further unauthorized access. Make sure to choose strong passwords when changing account passwords.
Report The Scam
Reporting helps protect others. While agencies can’t always track down perpetrators of crimes against scammers, they can utilize the information gathered to record patterns of abuse which may lead to action being taken against a company or industry.
Report your issue to the following agencies based on the nature of the scam:
- Local Law Enforcement: Consumers are encouraged to report scams to their local police department or sheriff’s office, especially if you lost money or property or had your identity compromised.
- Federal Trade Commission: Contact the Federal Trade Commission (FTC) at 1-877-FTC-HELP (1-877-382-4357) or use the Online Complaint Assistant to report various types of fraud, including counterfeit checks, lottery or sweepstakes scams, and more.
- Identitytheft.gov: If someone is using your personal information, like your Social Security, credit card, or bank account number, to open new accounts, make purchases, or get a tax refund, report it at www.identitytheft.gov. This federal government site will also help you create your Identity Theft Report and a personal recovery plan based on your situation. Questions can be directed to 877-ID THEFT.
How To Recognize a Phishing Scam
Scammers use email or text messages to try to steal your passwords, account numbers, or Social Security numbers. If they get that information, they could get access to your email, bank, or other accounts. Or they could sell your information to other scammers. Scammers launch thousands of phishing attacks like these every day — and they’re often successful.
Scammers often update their tactics to keep up with the latest news or trends, but here are some common tactics used in phishing emails or text messages:
Phishing emails and text messages often tell a story to trick you into clicking on a link or opening an attachment. You might get an unexpected email or text message that looks like it’s from a company you know or trust, like a bank or a credit card or utility company. Or maybe it’s from an online payment website or app. The message could be from a scammer, who might
- say they’ve noticed some suspicious activity or log-in attempts — they haven’t
- claim there’s a problem with your account or your payment information — there isn’t
- say you need to confirm some personal or financial information — you don’t
- include an invoice you don’t recognize — it’s fake
- want you to click on a link to make a payment — but the link has malware
- say you’re eligible to register for a government refund — it’s a scam
- offer a coupon for free stuff — it’s not real
About Online Threat Alerts (OTA)
Online Threat Alerts or OTA is an anti-cybercrime community that started in 2012. OTA alerts the public to cyber crimes and other web threats.
By alerting the public, we have prevented a lot of online users from getting scammed or becoming victims of cybercrimes.
With the ever-increasing number of people going online, it important to have a community like OTA that continuously alerts or protects those same people from cyber-criminals, scammers and hackers, who are every day finding new ways of carrying out their malicious activities.
Online users can help by reporting suspicious or malicious messages or websites to OTA. And, if they want to determine if a message or website is a threat or scam, they can use OTA's search engine to search for the website or parts of the message for information.
Help maintain Online Threat Alerts (OTA).