IFRS 2 Actuarial Valuations of Share-Based Payments

IFRS2 is an accounting standard requiring share-based payment transactions (such as granted shares, share options, or share appreciation rights) to be assessed at “fair value” and reflected in the company’s financial statements. Specific requirements are included for equity-settled and cash-settled share-based payment transactions. Actuaries are well placed to value such share-based payments.

One of the more common share options in South Africa are vendor-funded where a company, which requires black ownership for the purposes of BEE legislation, loans money to a prospective (black) shareholder to enable the acquisition of shares in the company.

Many of these BEE deals occur in private ((Pty) Ltd) or unlisted companies. While an IFRS 2 valuation is not required, unlike for listed companies (Ltd), it is able to give the private company a more realistic picture of its solvency. This is important in terms of the solvency and liquidity test of the Companies Act.