Many finance teams are operating under misconceptions about share scheme valuation requirements. This leads to compliance gaps, inadequate processes, and audit exposure. This article addresses the four most common myths about IFRS 2 and ASC 718 valuations. It covers who needs them, how often they are required, and who is qualified to produce them.
Myth 1: Small or Private Companies Do Not Need a Share Scheme Valuation
The reality: if you have a share scheme, you need a valuation. Company size is not a threshold.
The moment you issue share options, growth shares, or any equity-based award to employees, you have a share-based payment under both IFRS 2 and ASC 718. That triggers a valuation requirement. This is not because your auditor requested one. Nor is it because you have reached a headcount or revenue threshold. Rather, it is because the accounting standard requires it.
Company size affects the complexity of the valuation, not whether one is needed. For example, a fifty-person private company with an EMI scheme requires a defensible fair value just as much as a FTSE 250 does. Importantly, the consequences of non-compliance include restatements, audit qualifications, and HMRC scrutiny. These do not scale down with company size.
Understanding what finance teams really need from an equity valuation partner is an important first step for any organisation issuing equity for the first time.
Myth 2: An Annual Valuation Is Sufficient for IFRS 2 and ASC 718 Compliance
The reality: both standards require fair value to be measured at the grant date of each award.
IFRS 2 and ASC 718 both require companies to recognise share-based payment expenses at the fair value of the award at grant date. If you are granting equity quarterly, or issuing awards at different points across the year, a single annual valuation does not cover those grants accurately.
This matters most in volatile conditions. If your company’s value has moved materially between your annual valuation and a new grant date due to a funding round, a change in market conditions, or a significant operational development, using an outdated fair value is not defensible.
The practical solution is a valuation process fast and cost-effective enough to run at each grant date, not a workaround that creates compliance risk. In fact, this is one of the reasons why IFRS 2 and ASC 718 valuations that integrate directly with your equity workflow are increasingly the standard. This is especially true for finance teams managing frequent grant cycles.
Myth 3: A General Accountant Can Produce a Compliant Share Scheme Valuation
The reality: share scheme valuations under IFRS 2 and ASC 718 are a specialist discipline.
Share scheme valuations require expertise at the intersection of equity plan mechanics, financial modelling, and accounting standards. Specifically, the fair value of an employee share option typically requires an option pricing model such as Black-Scholes or a Monte Carlo simulation. This model must be applied correctly to the specific features of the plan.
Plan-specific features matter more than most finance teams realise. A market condition, a non-standard vesting trigger, a performance hurdle, or a modification to an existing award each changes how the valuer approaches the calculation and how the company recognises the expense. However, a generalist who does not regularly work with these structures is likely to oversimplify. As a result, the work will not hold up at audit.
For organisations managing TSR-linked executive incentive plans, the need for specialist valuation expertise is even more pronounced. This is due to the complexity of Monte Carlo modelling required for relative performance conditions.
Myth 4: IFRS 2 and ASC 718 Only Apply to Public Companies
The reality: both standards apply to private companies preparing IFRS or US GAAP financial statements, with very limited exceptions.
IFRS 2 applies to all entities preparing financial statements under IFRS, regardless of listing status. ASC 718 applies to all US GAAP entities issuing share-based compensation. Neither standard includes a carve-out for private companies beyond a narrow set of practical expedients. These expedients affect measurement, not whether the standard applies at all.
A private company backed by institutional investors, preparing for a listing, operating across multiple jurisdictions, or producing audited accounts under IFRS or US GAAP is fully subject to these standards. The assumption that private status changes the rules is usually wrong. Moreover, the audit findings that follow are costly to resolve.
Frequently Asked Questions
What triggers a share scheme valuation requirement under IFRS 2? Any issuance of equity-based awards to employees — including share options, growth shares, or restricted stock — constitutes a share-based payment under IFRS 2. This triggers the requirement to recognise an expense at the fair value of the award at grant date. A well-structured equity plan administration platform will maintain a complete, auditable record of every grant and its associated valuation inputs.
How often should a company obtain a share scheme valuation? A valuation is required at each grant date. If a company issues awards multiple times per year, each grant requires its own fair value assessment. An annual valuation is only sufficient if all grants occur on or around the same date and company value has not materially changed.
What valuation models are used for IFRS 2 and ASC 718 compliance? The most commonly used models are Black-Scholes and Monte Carlo simulation. The appropriate model depends on the award’s specific features, including vesting conditions, performance hurdles, and market conditions. Awards with non-standard features typically require Monte Carlo simulation.
Are EMI scheme valuations required under IFRS 2? Yes. EMI options fall within the scope of IFRS 2 for companies preparing IFRS financial statements. Companies must obtain a defensible fair value at grant date regardless of size, even where they have already agreed a separate HMRC valuation.
Can ShareForce provide valuations without a full platform commitment? Yes. ShareForce offers compliant IFRS 2 and ASC 718 valuations as a standalone service, without requiring adoption of the full equity management platform. Companies can use ShareForce for valuation work alone and retain their existing setup.
Every one of these myths leads to the same place: a valuation process that is missing, inadequate, or difficult to defend at audit. ShareForce provides specialist valuations faster and more cost-effectively than traditional providers. Book a demo to see how it works in practice.