Reporting guidelines for Broad-based Black Economic Empowerment (B-BBEE) schemes
Supporting a South African telecommunications giant with their fair valuation following a B-BBEE share option implementation
Black Economic Empowerment (BEE) and the appropriate implementation of related share option plans facilitate the South African government’s affirmative action policy, transforming the economy and redressing inequalities.
Innovation. South African industry leaders carefully align the pieces of the jigsaw puzzle to structure the unique terms and conditions underlying their B-BBEE credentials.
Action. The implementation of B-BBEE share option plans allows for reinvestment in South African communities, as well as accelerated growth of representation within the South African market. Incentives for implementing B-BBEE schemes encourage industry-leaders to uphold their corporate social responsibility, while simultaneously acquiring their desired BEE credentials.
Accounting. International Financial Reporting Standard 2: Share-based payments (IFRS 2) requires that any “value given away at less than fair market value” be reported in the financial statements as an expense. The accounting standard also explicitly addresses the implementation of BEE schemes and the accounting treatment thereof.
Navigating the stages of a B-BBEE share options implementation may prove to be difficult, and therefore relevant industry-knowledge and experience are crucial.
“Navigating the stages of a B-BBEE shares options implementation may prove to be difficult, and therefore relevant industry-knowledge and experience are crucial.”
Faaizah Budrudin
Associate Director, FS Advisory, Deloitte Africa
A leading telecom client approached their long-term advisor, the Deloitte Financial Services Advisory division, to determine the fair value of a new B-BBEE share option plan in accordance with the principles of the IFRS 2 accounting standard.
The Deloitte team carefully considered the puzzle pieces that together define the underlying terms and conditions of the B-BBEE scheme. In collaboration with the client, Deloitte’s experts formulated relevant and appropriate valuation assumptions; sourced and constructed necessary valuation inputs; and developed an advanced valuation model that captures financial covenants, accrual of underlying debt structures, and applicable discounted payoffs in its calculation of the IFRS 2 charge.
The solution was a dynamic valuation model that allows for flexibility and adjustability, should the need for subsequent revaluations or model modifications arise.
