ICAI issues accounting norms for sweat equity

At present, accounting for the Employee Stock Options Plan (ESOP) and Employee Share Purchase Plan (ESPP) schemes are governed by the Sebi (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999.

In a press statement issued today, ICAI said the Securities and Exchange Board of India (Sebi) had indicated that it would withdraw its ESOP and ESPP specifications as the institute had come out with its own set of guidelines.

The ICAI release said the specifications in its guidance note were more comprehensive than those issued by Sebi. A number of aspects like performance conditions, modifications to the terms and conditions of the grant of shares or stock options and earnings per share implications, which have not been specifically covered under the Sebi guidelines, have been dealt with in the draft guidance note.

The ICAI guidelines require the expensing of employee stock options, stock appreciation rights and the shares offered under the ESPP according to the fair value method, although it permits use of the intrinsic value method with extensive fair value disclosures.

The guidance note also recommends detailed disclosure requirements and provides a more comprehensive guidance on the measurement of the fair value of stock options. It also provides guidance on accounting for employee share based payments administered through a trust, and primarily suggests that it should be recognised in the books of the enterprise rather than in the books of the trust.

The new guidelines will be applicable to employee share based payment plans granted on or after April 1, 2005. 

The institute has also deferred till April 1, 2006, the applicability of the Accounting Standard 22, which deals with taxation on income for non-corporate enterprises.