1ACCOUNTING THEORY Task One In this report, an effort has been made to discuss the issue of share based payment systems that has been adopted on a large scale by the entities across the country.The share options or shares are used inplaceother kinds of payments and is one ofthe ways in which the business motivates its employees to perform well in the future as well. This is very crucial for the businesses to grow in long run.Itcannot be denied that the provision of payment through share-based systemdoesnot result in direct flow cash however, this does not signify that this system of payment do not cost the business anything. Apparently, the business is giving up a few things that might have a value not at present will surely be in future when these options are exercised. Previously in Australia the organisation remunerating its employees by way of providing them with the shares of the company, which they could, encash in the future did not make any entry in respect of this transaction in the financial statements of the company. It is very common for the entities to issue shares for the compensation of the employees. This type of remuneration was more often adopted for remunerating the senior executives and the directors of the company. Prior to the introduction of the AASB 2Share Based Payment, therewere no standards in this respect that covered the recognition and the measurement of these kinds of transactions. This soon became one of the main areas of concerns as the prevalence of this kind of compensation became common in the organisation across the country.
2ACCOUNTING THEORY With the increase inthe prominence of the share based awards became larger in respect of the employee and executive compensation, the personnel responsible for setting up of the standards became aware that share based compensations are becoming an integral part of the total compensation package. It was hence concluded that all the entities were supposed to recognise the share based payments as an expense, exactly as it does in the case of cash transactions. The benefit for expensing the share-based model is immense. The shareholders are able to get the real economic reality of the entity’s financial position and the financial performance of the organisation. The companies were trying to con the general public by not factoring in the share-based payments made to the Directors and the senior executives. For instance in case of a company called Salesforce.com the company was able to earn a total revenue of $658 million over the period of last three years of its operations whereas the for the same period its employees were babble to net an earning amounting to $1 billion in cash. Theyachieveditbycashinginthesharesreceivedbythemthroughsharedbased compensation model of the company. This shows the importance of the AASB 2. Previously it was even possible for the employees to be earning even more than the company itself without the shareholders knowing about it due to the non-disclosure of the amount of it in the face of the financial statement of the company. The importance of the Standard can also be gauged from the fact that if the share based payment is used for compensating the suppliers of the company without recording the same in the financial statements of the company, then the financial obligations of the company will not be reflected by the financial statements at all. Hence, it is of utmost importance that all the share-based payments entered into by the company are duly recorded and accounted for in the financial statements of the company.
3ACCOUNTING THEORY However, on the other side, this is detrimental for creation of jobs, growth of the economy and innovation. This situation has recently worsened due to planned process for valuation. In early levels of the business are characterised through extremely volatile earnings and revenues. This influences the volatility of the shares that are latent. As a result, the Options are given to employees in early stages of the businesses might be under the proposed standards. This displays a bigger expense than the similar options that are given to employees in the firm with steady maintainable revenues. In context to Share based payments is concerned, distinct persons may consider that the issue of this type of transaction may cost the entity anything that is fully reliant on the terms and conditions of the issue. As an example, if the entity gives its executives or employees an options that are exercisable in a future date that meant that the employee would work more dedicatedly in increasing the value of the entity (Steinberget al.2016). From the side of the business, they are not giving any real value to employees until the shares values of the entity are improved through dedicated work of the employees. This will have a good impact on the performance of the entity. Therefore, the shares or options values are related to the entities growth and prosperity in the future.
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4ACCOUNTING THEORY Reference Ozcan, P. and Santos, F.M., 2015. The market that never was: Turf wars and failed alliances in mobile payments.Strategic management journal,36(10), pp.1486-1512. Steinberg, J., Morris, A., Konar, V., Perro, F.R., Senesac, P. and Polakoff, D., 2016. Paving the Way for Practice Success Under Value-Based Payments. Yilmaz, E., 2015. Accounting for share based payments according to TFRS-2.