Shares and shares alike

FITAR returns to the treatment of equity derivatives as further developments raise new concerns.

In last months FITAR, we reported on the US issue of accounting for equity derivatives written by a company on its own stock. Specifically, we looked at the impending need for a company to ensure that it could not be required to settle such options by a net cash payment, rather than by delivery of an equivalent value of shares. Failure to ensure this will result in the company having to mark the options to market every quarter, rather than accounting for them in equity, ie, at book value.