There are various situations which give rise to the need for the valuation of options or other financial instruments. This can include valuations of businesses where these instruments form part of the ownership structure, or specific transactions that include a share based consideration as defined in terms of the accounting standard IFRS 2.

The valuation is performed using complex models, with the two common models being a Binomial model and the Black Scholes model. These models take into account a variety of inputs and assumptions, such as:

  • The duration of the option;
  • The share price and volatility of returns;
  • The dividend yield;
  • The likelihood that options will not be exercised; and
  • The risk-free rate.

Share based payments can be a considerable expense and thus the use of an expert will reduce the risk of non-compliance with IFRS 2 as well as ensuring that all factors have been adequately considered to ensure that an accurate determination has been completed and disclosed.

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