arrow Stock options : French accounting review

Overview : Stock options and French Gaap

As part of the remuneration, a company may set up a stock option plan to allow its managers or employees to access to the capital at an advantageous cost.

In stock options, there are two different cases:
i) share subscriptions options
ii) share purchase options

The share subscription option corresponds to a capital increase, the new shares of which are intended to be distributed to the beneficiaries in accordance with the stock option plan. Thus, this remuneration does not result in any outflow of resources upon delivery of the new shares issued, but results in a dilution charge borne by the existing shareholders.

The share purchase option corresponds to the repurchase of existing shares according to the stock option plan. This results in an outflow of resources for the company, which corresponds to an expected loss when the shares are delivered.

The probability of exercising these options depends on the probability of meeting the presence and performance conditions set by stock action plan and on the probability of exercising options depending on the stock exchange price at the end of the financial year.

The diversity of these two options leads to a different accounting translation in French GAAP.

It should be noted that the accounting treatment of the social charges relating to the stock options is similar in both cases (when the company is subject to it).

Accounting method

Share subscriptions option

The case of the share subscription option is relatively simple.

As this has not cost for the company (the capital increase has only a dilution impact on the existing shareholders), this situation does not require the recognition of a provision.

Share purchase options

The case of share purchase options will usually cause a loss borne by the company; so, a provision must be assessed in the accounts.
This provision must be spread over the vesting period.

We will identify two different situations:


i) Shares have already been bought

In this case, the shares have already been purchased before the implementation of the stock option plan and are booked in a cash account “own shares”.

The determination of the accounting provision is as follows:

[(Number of shares estimated @ the end of the vesting period) ×(Acquisition cost of the own shares-Exercise price)]×(Prorata of the vesting period@the closing date/Vesting period)

As the shares have already been acquired, the variation of the provision from one year to the next will depend on:
– the estimated number of shares assigned at the end of the vesting period,
– and the prorata temporis.


ii) Shares have not been bought yet

In this situation, the shares will only be acquired before allocation to the beneficiaries. As a result, the formula for calculating the provision differs slightly:
[(Number of shares estimated @the end of the vesting period) ×(Fair value@@ closing date-Exercise @price]×(Prorata of the vesting period@ the closing date/Vesting period)

In this case, the valuation of the allowance will vary from year to year depending on:
– the fair value of the shares,
– the estimated number of shares assigned at the end of the vesting period,
– and the prorata temporis.


The principle of prudence is mandatory in the French GAAP; only the case of a loss borne by the company must be recognized as a provision.
In consequence, in the event of a gain (fair value of shares or acquisition cost less than the exercise price), no elements should be recognized in the accounts.

It is important to clarify that the determination of the provision must be assessed on a plan-by-plan basis in the context of a plurality of plans, each plan constituting a separate obligation. The entry cost of the shares is therefore determinate by taking the average cost of all the shares allocated to the plan.

It is also important to assess that the provision must be revalued during the stock option plan at the end of each financial year.

As stock options are an element of remuneration, this provision is booked in staff expenses, as counterpart a provision account.

Finally, regardless of the stock option plan, a provision for social charges must be booked and spread over the vesting period.