When a company pays for goods and services, it records the expenditure in its accounts. Sometimes, payments are made in terms of the company’s own securities - i.e. shares and/or options. These are referred to as share-based payments and are also expenses which the company records in the accounts.
To do this, the securities need to be valued. This is a simple matter where the securities are listed and freely marketable and the going market price is easily established. However, where the securities are not listed and a market does not exist, the issue of valuation is more complex.
In the case of options, there are several widely accepted models upon which to base a valuation. These require a variety of assumptions and empirically determined parameters as inputs to the determination of value.
Where options vest over time, their value is booked progressively over time to reflect the progressive transfer of ownership to the payee (amortised).
Where the eventual amount vested is less that the original expected amount (due to failure to meet all vesting conditions), then some adjustment may be necessary to reflect the reduced vesting in the subsequent period.
However, once vested and accounted for, the expensing of the transaction is complete.
Should options eventually become worthless and lapse or increase in value after vesting, there is no impact on the company’s accounts.