1. The promulgation of "Accounting Standards for Business Enterprises No. 11 - Share-based Payment"
In response to the promulgation of "Measures for the Management of Equity Incentives for Listed Companies ", in 2006, the Ministry of Finance issued the new accounting standards for enterprises "Accounting Standards for Business Enterprises No. 11 - Share-based Payment", which standardized the accounting issues for equity incentives of listed companies. The basic principle of its treatment is that the implementation of the equity incentive plan is actually a transaction in which the listed company uses share-based payment in exchange for services provided by the incentive objects. Therefore, in accounting, debits increase the company's costs and expenses, and credits decrease shareholders' equity.
2, Explanation of the application of share-based payment standards for companies planning to IPO in previous guarantee trainings
September 2011, September 2016, 2017 The three insurance agency trainings in November 2020 all emphasized the principle of share-based payment for IPO companies. The basic principles for identifying share-based payment in the three agency trainings have not changed. Equity incentives (including capital increases, equity transfers, etc.) of companies to be listed on the main board, small and medium-sized board and GEM are handled in accordance with the share-based payment standards. Later, it was further emphasized that IPO declaration Enterprise Accounting Standards should be consistent with the requirements of listed companies and need to be implemented in accordance with the "Enterprise Accounting Standards No. 11 - Share-based Payment". Whether
may be applicable to share-based payment should be considered from the following aspects: whether
(1) is exchanged for services or can increase other future benefits of the enterprise. Therefore, the following situations can be interpreted as not being for the purpose of exchanging services, and do not fall within the scope of share-based payment (items 1 to 8 below can be found in the third and fourth sponsor representative training records in 2011, and items 9 to 10 can be found in Article 3 of "Accounting Standards for Business Enterprises No. 11 - Share-based Payment"):
①In order to clarify the equity, the shares held on behalf of the company will be restored;
②The company implements a virtual equity plan and settles the equity before filing;
③'s shareholding plan has long been passed, but it is carried out through agreement control and needs to be cashed in;
④ Canceling overseas listing and transferring relevant equity back to China;
⑤ Inheritance, division, gift, and transfer between relatives (even if relatives are also working in the company);
⑥ Asset reorganization (such as acquisition of minority shareholders' equity in subsidiaries, etc.);
⑦ Allotment of shares by all shareholders;
⑧ Equity changes resulting from the integration of changes in the equity of subsidiaries and brother companies;
⑨ Transactions in which equity instruments are issued to obtain the net assets of other companies during a business merger;
⑩ Transactions in which an enterprise obtains other financial instruments using equity instruments as consideration. Is there a difference between
(2) and fair value . The difference will be included in the company's administrative expenses and non-recurring profits and losses in accordance with the share-based payment standards. According to this standard, management expenses = ( fair price - actual transfer price) × number of shares.
3. Application of share-based payment standards by companies planning to IPO
Since Ruihe Shares implemented share-based payment during the IPO filing stage in 2011, the China Securities Regulatory Commission has made some new changes in the accounting treatment of executive incentives before listing. The equity transfer (including capital increase) of the actual controller to executives before listing will be regarded as share-based payment (accounting treatment is Dr: Management expenses Cr: capital reserve will affect the income statement, but will not affect net assets and will not affect the number of shares converted). Previous cases such as Xinzhu Shares (002480) were actually handled as share-based payments, but in the past they were more explained from the perspective of differences in pricing due to different identities. Moreover, Company Law does not clearly provide for this.
The transfer by major shareholders in the equity incentive plans of listed companies must ultimately be accounted for in accordance with the China Securities Regulatory Commission "Reply on the Accounting Treatment of Equity Incentives Provided by Shareholders" and with reference to the relevant provisions of "Accounting Standards for Business Enterprises No. 11 - Share-based Payment". The equity incentives of Shenzhen Zhenye A (000006) are adjusted in accordance with this regulation.
From an IPO perspective, equity incentives must be comprehensively planned with the introduction of PE investment institutions and the reporting time to avoid causing a sharp decline or even loss in 's net profit in the year of the incentive (especially the year of the reporting period) and thus affecting the listing process. At present, the main board still requires continuous profits for the past three years; although the Science and Technology Innovation Board, GEM, and and Beijing Stock Exchange allow unprofitable companies to be listed, the requirements are very high.
The focus of the review of share-based payments during the reporting period is the most recent year and period. The previous valuation adjustment has greater room for adjustment. For some dual identities that are difficult to distinguish, they can not be distinguished. The implementation is wider. The expenses caused by share-based payments can be included in non-recurring profits and losses.
Before 2016, there was no case of share-based payment accounting treatment for GEM IPOs, and regulators were not in favor of GEM’s application of this rule. However, share-based payment standards still apply when GEM companies carry out mergers, acquisitions and reorganizations. Since 2016, regulators have planned to consider that the GEM will gradually apply this standard. The insurance agent training record in November 2016 clearly requires the GEM to implement the share-based payment standards. Before 2018, the "First Issue Review Financial and Accounting Knowledge Questions and Answers" had not yet been released. At that time, the China Securities Regulatory Commission's recognition principles for share-based payment were as follows:
Audit principles internally mastered by the China Securities Regulatory Commission At present, the Issuance Department has reached an agreement with the GEM Issuance Department that the "Corporate Accounting Standards - Share-based Payment" should be implemented. The Issuance Department requires that to determine whether it constitutes an equity-settled share-based payment, the following two conditions should be grasped: 1. The issuer obtains services provided by employees and other parties. Issues of shares at low prices to employees (including executives), specific suppliers, etc. in exchange for services should be accounted for as share-based payments. 2. There is a price for services. Consideration is fair value, which is a market price and will always fluctuate. If the valuation cannot be made, the reasons should be stated, but this will not happen in practice. It’s about to go public, why can’t it be valued? Isn’t there a valuation report? If it cannot be valued, is it still profitable? This will involve issues of listing conditions. The indirect investment of shares in by executives or the transfer of shares of the issuer is also considered a share-based payment. For example, if executives set up an investment company , they can indirectly invest in the company, or acquire the issuer's shares from the issuer's major shareholder. When implementing the standards for share-based payment, the principle of strict determination of share-based payment and lenient exclusion of shares shall be grasped. The following transactions may not be regarded as share-based payment: 1. Obtaining shares based on the status of a shareholder, such as issuing additional shares to the actual controller, or allocating shares to the original shareholder, sometimes even though the allotment ratio is different; 2. Transfer or issuance of shares to close relatives, in principle, no share payment will be made, and the transaction is mostly of a gift nature. 3. The senior executives originally held equity in the subsidiary, but after the rectification of regulations, they held shares in the issuer. This transaction has nothing to do with obtaining services and is not a share-based payment. Whether is a share-based payment should be made by the issuer and accountants professionally based on the actual situation. (2) Determination of fair value If executives and external investors invest in shares during the same period, the fair value of the shares obtained by the executives cannot exceed the PE price, but cannot be lower than the net assets per share . There are exceptions in special industries. For example, the stock price of listed real estate companies is also lower than the net assets. PE must have a certain amount. If the amount is too small, it will not be representative. It does not say that the PE price should be used as the fair price for the shares acquired by executives. How the fair value is determined between the above upper and lower limits should have reasonable reasons and adjustment factors. This is subject to the professional judgment of the issuer and accountants. If there is no PE, the fair value can be determined using a valuation model, and the assessed value is also acceptable. Since the shares of the issuer indirectly held by executives cannot be directly circulated and liquidated, their fair value will be different from the shares of the issuer held directly. A valuation model can be used, and sometimes the fair value can be confirmed based on net assets. (3) Handling of expenses related to share-based payment If there is a waiting period for share-based payment, it can be amortized in installments during the waiting period.If it is agreed that the executive will have a service period after acquiring the shares, it is also possible to exercise the rights first and then amortize in installments, but the following conditions must be met: If the executive leaves before the expiration of the service period, the interests related to the shares must flow back to the company, otherwise a one-time amortization is required. The Issuance Department does not encourage the amortization of share-based payment expenses. Unless otherwise stipulated in a document, share-based payment related expenses can be deducted as non-recurring gains and losses. (4) If other 1 and executives have invested a long time ago (for example, more than one and a half years have passed), and the price of the shares is not lower than the company's net assets per share at the time of the investment, they may not be considered as share-based payments. 2. For companies that have passed the meeting, there will be no change in principle to the handling of shares obtained by senior executives involved during the reporting period. 】 |
In 2018, the regulatory agency issued the "IPO Review Financial and Accounting Knowledge Questions and Answers" [This Q&A was eventually revised to the "IPO Business Answers", which is the 54th IPO Review Questions and Answers] , which specifically stipulates the share-based payment matters before the IPO. Generally speaking, if the capital increase or transfer of shares is immediately granted or transferred without clearly agreed service period and other restrictions, in principle, it should be included in the current period in a lump sum and included in non-recurring profits and losses as an incidental event. For share-based payments that set restrictions such as service periods, the share-based payment expenses can be apportioned within the service period using appropriate methods and included in recurring profits and losses. [But cases of amortization of are very rare, such as CATL IPO. The reason why such cases are rare is that equity incentives before IPO are often based on the recognition of past contributions rather than the performance of future services. The assessment of future service periods and performance is often carried out after the company is listed. 】
4. Changes in share-based payment accounting when listed companies implement equity incentives
(1) Calculation of share-based payment expenses for listed companies and amortization
According to Article 4 of the "Accounting Standards for Business Enterprises No. 11 - Share-based Payment" issued by the Ministry of Finance on February 15, 2006, the fair value of equity instruments in share-based payment transactions should be determined in accordance with the "Accounting Standards for Business Enterprises No. 22 - Recognition and Measurement of Financial Instruments". The fair value of equity instruments such as granted stock options should be measured according to their market price; if there is no market price, the market price of options with the same transaction terms should be referenced; if neither of the above two can be obtained, the option pricing model should be used to estimate, and the selected period The option pricing model should at least consider the following factors: (1) the exercise price of the option; (2) the validity period of the option; (3) the current price of the underlying shares; (4) the expected volatility of the stock price; (5) the expected dividends of the shares; (6) the risk-free interest rate during the validity period of the option.
① Calculation method of stock option value
According to the relevant provisions on the determination of fair value in the "Accounting Standards for Business Enterprises No. 22 - Recognition and Measurement of Financial Instruments", it is necessary to select an appropriate valuation model to calculate the fair value of stock options. Judging from current market practice, listed companies all choose the Black-Scholes model to calculate the fair value of options. The specific calculation formula of the Black-Scholes model is as follows:
formula parameters: underlying stock price (S), exercise price (K), option validity period (t), risk-free interest rate (r), underlying stock volatility (σ) and the dividend rate of the underlying stock (i).
In the process of calculating the fair value of stock options, listed companies will select parameters that meet the requirements of the formula based on their own circumstances, and substitute the parameter values into the Black-Scholes mathematical model to calculate the fair value of each stock option.
② Calculation method of restricted stock value
Judging from the current restricted stock incentive plan market practice, the calculation method of the fair value of restricted stock is mainly divided into two types, one is the traditional algorithm, that is, the common algorithm before 2011, and the other is the innovative algorithm [Currently, listed companies’ equity incentive practices are often implemented by hiring financial consultants. Brokerages rarely design equity incentive plans for listed companies individually, and different financial consultant models may have different calculations] , which is a method of calculation based on the valuation model commonly used after 2011, as follows:
A. Traditional algorithm, in the traditional algorithm, the fair value of each restricted stock = the closing price of the company's stock on the date of restricted stock grant -The traditional algorithm for the grant price of restricted stocks is relatively simple. Basically, the fair value of each restricted stock is half of the market price. However, for listed companies, the pressure of amortization of expenses is too great, which will have a greater impact on performance evaluation in the next few years. This algorithm is used less and less after 2011.
B. innovative algorithm, according to the provisions of the "Accounting Standards for Business Enterprises No. 11 - Share-based Payment" Application Guide: For equity instruments such as options granted in an active market, their fair value should be determined based on the quoted price in the active market. For equity instruments such as options granted for which there is no active market, the fair value should be determined using an option pricing model. Restricted stocks granted to incentive objects are equity instruments with no active market. Relevant valuation methods need to be used to determine the fair value of the restricted stocks on the date of grant. The basic theoretical logic and calculation method are as follows:
In the process of estimating the fair value of restricted stocks on the grant date, the cost that the incentive objects need to pay to ensure that they can sell the restricted stocks at an expected reasonable price in the future (hereinafter referred to as "discount cost") must be considered. The discounted cost of equity instruments requires incentive objects to ensure that they can sell restricted stocks at expected reasonable prices in the future to obtain profits. Each incentive object will buy and sell three pairs of warrants in opposite directions on the grant date, that is, buying put warrants and selling call warrants. Therefore, the fair value of restricted stock = closing price on the date of grant – grant price – discount cost. The discount cost in the formula is the warrant investment cost of the incentive object to lock in reasonable expected future returns. The fair value of the three pairs of warrants can be calculated according to the Black-Scholes mathematical model, thereby obtaining the discount cost. Substituting into the above formula, the fair value of the restricted stock can be obtained.
C. On May 18, 2021, the Accounting Department of the Ministry of Finance released an application case for the share-based payment standards, clarifying that the accounting treatment method for the second type of restricted stocks is compared with stock options and calculated using the B-S model .
③Amortization of stock options and restricted stock share-based payment expenses
Judging from market practice cases, the amortization methods of share-based payment expenses generally include the following three methods: One is the most commonly used, straight-line amortization method , that is, each batch of exercised and unlocked restricted stocks is amortized at a uniform rate on a daily basis during the corresponding waiting period/locking period, and then the amortization expenses of each batch in each year are superimposed to obtain the share-based payment expenses that need to be amortized in each year. The second is the annual average amortization method, that is, the total expenses that need to be amortized during the future waiting period/lock-in period are averaged over the number of years, and the amortization expenses are the same in each year. The third is the monthly average amortization method, that is, the total expenses that need to be amortized during the future waiting period/lock-in period are averaged by the number of months, thereby calculating the share-based payment expenses that need to be amortized in each year.
(2) Accounting treatment of share-based payment expenses
After the listed company’s equity incentive plan is reviewed and approved by the shareholders’ meeting, the listed company needs to convene a board of directors to determine the grant date. According to the provisions of accounting standards , share-based payment expenses must be amortized from the grant date until the option or restricted stock waiting period or unlocking period expires. This section mainly explains the accounting treatment methods under various circumstances from the date of grant to the completion of exercise/unlocking.
① Grant date
On the grant date, no accounting treatment is required for stock options.Restricted stocks need to confirm the share capital and capital reserve based on the company's targeted issuance of shares to incentive targets - equity premium .
Borrow: Bank deposit
Loan: Equity
Capital reserve - Equity premium
② Each balance sheet date during the waiting period
According to the accounting standards, in the bank On each balance sheet date before the rights/unlocking date, the services provided by employees will be included in costs and capital reserves (other capital reserves) based on the fair value of the equity instruments on the date of grant and the exercise/unlock ratio of each period of stock options/restricted stocks, and their subsequent changes in fair value will not be recognized.
makes the best estimate on each balance sheet date based on the latest changes in the number of vested/unlocked incentive objects and other subsequent information. corrects to estimate the number of vested/unlocked stock options/restricted stocks. After the equity incentive plan is implemented, the final estimated number of vested/unlocked equity instruments should be consistent with the actual number of vested/unlocked instruments.
calculates the cumulative amount of costs and expenses that should be recognized based on the fair value of the above-mentioned equity instruments and the number of equity instruments expected to be exercised/unlocked, and then subtracts the cumulative amount recognized in the previous period as the amount of costs and expenses that should be recognized in the current period.
Borrow: Management expenses
Loan: Capital reserves - Other capital reserves
③ Exercise date /Unlocking date
On the exercise date, if the exercise conditions are met, the options can be exercised, and the capital reserves (other capital reserves) confirmed on each balance sheet date before the exercise date will be carried forward, and the share capital and capital reserves - equity premium - will be confirmed based on the company's targeted issuance of shares to incentive targets.
Borrow: Bank deposit
Capital reserve - other capital reserve
Loan: Equity
Capital reserve - Equity premium
On the unlocking date, if the unlocking conditions are met, it can be unlocked and the capital reserve (other capital reserve) confirmed on each balance sheet date before the unlocking date will be carried forward; if all or part of the stock is not unlocked and becomes invalid or invalid, the company will repurchase it at the prescribed price and handle it in accordance with accounting standards and relevant regulations.
Borrow: Capital reserve - Other capital reserve
Loan: Capital reserve - Equity premium
④ If the company considers voluntarily canceling the incentive plan due to its own reasons, the share-based payment expenses that have been accrued will not be reversed, and the shares that should have been recognized within the remaining waiting period will not be reversed. The payment expenses shall be immediately recognized and the following accounting treatment shall be carried out:
Debit: Management expenses
Credit: Capital reserve - other capital reserve
⑤ If the net profit during the waiting period cannot be lower than the average of the previous three years and cannot be negative, the plan shall be canceled (except if this clause is not set in the equity incentive plan). This situation is a non-market condition. Unconfirmed expenses are no longer determined. Confirmed expenses will be reversed and the following accounting treatment will be done:
Debit: Capital Reserve - Other Capital Reserve
Credit: Management Expenses
⑥ If the plan is suspended as agreed in the plan, it will be regarded as a non-market condition, and the unrecognized expenses will no longer be determined. Confirmed expenses will be reversed, and the following accounting treatment will be done:
Debit: Capital Reserve - Other Capital Reserves
Credit: Management Expenses
⑦ When the company's performance does not meet the standard, and the non-market conditions among the vesting conditions are not met, the unrecognized expenses will no longer be determined, and the confirmed expenses will be reversed, and the following accounting treatment will be done:
Borrow: Capital Reserve - Other Capital Reserve
Loan: Management Expenses
⑧ If the company's performance reaches the standard, but the exercise price is lower than the market price, and the market conditions among the vesting conditions are not met, the corresponding services received should be confirmed, and at the same time included in the management expenses, the following accounting treatment should be done:
Borrow: Management Expenses
Loan: Capital Reserves - Other Capital Reserves
5. Analysis on whether share-based payments are included in recurring profits and losses or non-extraordinary profits and losses.
Taking listed companies as an example, there are clear guidelines that can be used as a basis to amortize share-based payments for company equity incentives as recurring profits and losses.It can be traced back to the "Memorandum No. 2 on Matters Related to Equity Incentives" (expired) formulated by the Listing Department of the China Securities Regulatory Commission in 2007. It stipulates: "A company can set performance appraisal indicators suitable for the company based on its own circumstances. The performance appraisal indicators should include financial indicators and non-financial indicators. If the performance assessment indicators involve accounting profits , they should be calculated in accordance with the new accounting standards , after deducting non-recurring gains and losses. net profit. At the same time, option costs should be expensed in recurring profits and losses. "In the fourth issue of the "Accounting Supervision Work Newsletter" sponsored by the Accounting Department of the China Securities Regulatory Commission in 2016, it was also clarified that "according to the relevant provisions of Explanatory Announcement No. 1, equity incentive expenses are expenses related to the normal production and operation of the enterprise and should be regarded as regular profits and losses."
There are different ways to deal with the implementation of equity incentives in non-/planning-to-be-listed companies in practice.
Non-recurring gains and losses: The definition of "Explanatory Announcement No. 1 on Information Disclosure of Companies that Offer Securities to the Public - Non-recurring gains and losses" refers to gains and losses arising from various transactions and events that are not directly related to the company's normal operating business, and although related to the normal operating business, due to their special nature and sporadic nature, affect the users of the statements to make normal judgments on the company's operating performance and profitability.
In practice, there are the following two processing methods:
① Treat as non-recurring gains and losses
From a tool point of view, the company to be listed will grant the incentive objects equity, and industrial and commercial registration will be carried out once it is granted. This kind of instrument that can be exercised immediately once granted is usually recognized as a one-time inclusion in the current profit and loss under accounting standards and treated as non-recurring profit and loss. From a purpose perspective, the granting of equity instruments to incentive targets by the company to be listed may require the incentive targets to continue to provide services in the future, or it may be an unconditional grant in recognition of past contributions or current positions and performance. There are no mandatory performance conditions, so it is difficult to apportion it, thus entering the category of non-recurring gains and losses.
② Treated as recurring profits and losses
In actual operation, some companies to be listed will also add additional clauses when formulating equity incentive plans, and agree with the incentive objects that they need to serve the company for a certain number of years in the future. In this case, the employee's service will have a relatively clear period, which also illustrates the non-contingency factor of this equity incentive, so the company can amortize it in installments during the employee's service period.
Based on the current market practice case analysis, there are different operating methods for companies to be listed on treating share-based payments as non-recurring profits and losses or recurring profits and losses. Therefore, you can refer to whether there are additional terms in the incentive plan, such as whether there is an agreement with the incentive recipients that they need to serve the company for a certain number of years in the future, etc., to determine the non-incidental factors of this equity incentive. If
is a one-time grant and can be immediately exercised, and it may be granted sporadically or in recognition of historical contributions and has no direct connection with the company's normal business operations, it falls within the scope of non-recurring gains and losses. Because the company implements equity incentives and has share-based payments, classifying them as non-recurring gains and losses can help investors and relevant regulatory agencies realize the company's true profitability. They can deduct the impact of non-recurring gains and losses when analyzing the company to look at the financial indicators, thereby making a fairer judgment on the company. This is one of the reasons why most of the current market treatments are non-recurring gains and losses.
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