Just how wrong can you be? Now the AASB is examining the extent of uncertainty in equity plan expensing (plus a gross-up for super valuations)

Executives and directors often complain that the accounting expense attributed to some executive equity payments bears no reality to the value realised.  The executive pay reporting terms of reference from the Australian government to CAMAC recognised this.


And, it seems, the accounting profession is a tinge concerned too.  While AASB Exposure Draft ED 199 – Measurement Uncertainty Analysis Disclosure for Fair Value Measurements (see HERE) will not have an impact on remuneration reports, it could result in a bit more work noting the cost of employee benefits and equity plans in the financial accounts.


IASB Exposure Draft ED/2009/5 Fair Value Measurement (refer AASB Exposure Draft ED 181) proposed a fair value hierarchy for the categorisation of fair value measurements of assets, liabilities and an entity’s own equity instruments.  The IASB and the FASB have tentatively decided to require entities to disclose a measurement uncertainty analysis for fair value measurements unless another IFRS specifies that such a disclosure is not required for a particular asset or liability.


ED 199 addresses the proposed requirement for an entity to disclose a measurement uncertainty analysis for fair value measurements given the AASB’s decision to require an entity to take into account the effect of correlation between unobservable inputs in that analysis.  That is, what could the range of variability be if the calculation assumptions are adjusted?


The AASB is seeking comments on ED 199 by 16 August 2010 as part of the process of formulating its own comments to the IASB, which are due by 7 September 2010.  The IASB and the FASB will jointly consider the responses to this exposure draft.


On a related note that will only impact a few companies, the AASB is also looking at the impact of employee contributions tax of 15% paid by defined benefit superannuation funds.  Consistent with the definition of ‘present value of a defined benefit obligation’ in AASB 119, constituents that argue against contributions tax paid and payable being deducted from the investment earnings of the plan propose that a defined benefit liability should be grossed-up for the future contributions tax payable in respect of expected future contributions.  For those of us not engaged in last minute finessing of shareholder engagement for executive pay reporting and voting in association with FYE reporting, this makes interesting reading.  Truly.  See for yourself HERE

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