Issues arising for accounting harmonization: The case of stock options in Italy

Does Accounting Choices Affect Financial Reporting Communication? Some Critical Consideration

“…25 Actually, most of Italian not IAS adopter companies follow an accounting treatment that differs from the provisions of IFRS 2. For further details, see Corbella and Florio (2010). 26 Settled transactions are those that involve the sale of equity instruments, intended as shares or options on shares of the company upon receipt of goods or services performed by an employee or any other person (Iannucci & Peroni, 2010).…”

“…Therefore, the Italian system of accounting and the IFRS with respect to this aspect generates a dichotomy with important consequences. The performance indexes such as return on asset (ROA), return on sales (ROS), ROE, and data determined according to documents of income as earnings before interest and taxes (EBIT), earnings before interest, taxes, depreciation, and amortization (EBITDA), economic value added (EVA), generally used to assess performance levels in companies that do not apply the IFRS are lower, as well as are the denominators of the indices used to apply multiple methods of negotiation, such as EV/EBIT, EV/EBITDA (Corbella & Florio, 2010).…”

“…All this produces distortion of information given to the markets, as it affects the information on the earning capacity of the enterprise. In conclusion with regard to stock options (and not only to those), the situation in Italy is characterized, in fact, unlike the US, to a condition of "accounting dualism" (Corbella & Florio, 2010), due to the coexistence of national accounting standards (Italian Generally Accepted Accounting Principles (GAAP)) and international accounting standards IAS/IFRS.…”

“…As stated, in fact, by Corbella and Florio (2010), since 2005 in European countries such as Italy, Germany, France, Greece, Portugal, Spain, and England, there are two different accounting systems: the national one and the IFRS, which provide different descriptions of the stock options, with significant effects on the measurements of the profit at year-end. Even under the same conditions of space and time, the two authors point out how the two accounting systems lead to different figures and different compositions of assets, liabilities, and operating results of the company (Corbella, 2004).…”

“…123 which allowed the use of the method of evaluating the intrinsic value introduced by APB Opinion No. 25 as an alternative method to the imputation of the cost measured at fair value through profit or loss (Corbella & Florio, 2010), with the only obligation to highlight the profit in the additional note, and incomes per share "pro-forma", that is, the net income that would have been determined if the cost had been recognized using the forecasts of statement No. 123, calculated taking into account the cost of the fair value of stock options (Bell, Landsman, Miller, & Yeh, 2002).…”