AASB 2 SHARE-BASED PAYMENTS

OUR EXPERIENCE Interim report for the six months ended 31 December listed companies 18 listed companies 12 with share-based payments relating to issue of unlisted options to Directors, Employees and Consultants 12 with share-based payments relating to issue of unlisted options to Directors, Employees and Consultants 6 out of 12 resulted in adjustments to the value 6 out of 12 resulted in adjustments to the value

OUTLINE Key definitions Key definitions Types of share-based payments Types of share-based payments Key audit issues Key audit issues Key audit assertions Key audit assertions Sufficient appropriate audit evidence Sufficient appropriate audit evidence Disclosure Disclosure Issues encountered by Ord Nexia for the six months ended 31 December 2007 Issues encountered by Ord Nexia for the six months ended 31 December 2007

KEY DEFINITIONS share-based payment arrangement An agreement between the entity and another party (including an employee) to enter into a share-based payment transaction, which thereby entitles the other party to receive cash or other assets of the entity for amounts that are based on the price of the entity's shares or other equity instruments of the entity, or to receive equity instruments of the entity, provided the specified vesting conditions, if any, are met. An agreement between the entity and another party (including an employee) to enter into a share-based payment transaction, which thereby entitles the other party to receive cash or other assets of the entity for amounts that are based on the price of the entity's shares or other equity instruments of the entity, or to receive equity instruments of the entity, provided the specified vesting conditions, if any, are met.

KEY DEFINITIONS share-based payment transaction A transaction in which the entity receives goods or services as consideration for equity instruments of the entity (including shares or share options), or acquires goods or services by incurring liabilities to the supplier of those goods or services for amounts that are based on the price of the entity's shares or other equity instruments of the entity. A transaction in which the entity receives goods or services as consideration for equity instruments of the entity (including shares or share options), or acquires goods or services by incurring liabilities to the supplier of those goods or services for amounts that are based on the price of the entity's shares or other equity instruments of the entity.

TYPES OF SHARE-BASED PAYMENTS Equity-settled share-based payment transactions Equity-settled share-based payment transactions Cash-settled share-based payment transactions Cash-settled share-based payment transactions Share-based payment transactions with cash alternative Share-based payment transactions with cash alternative

EQUITY-SETTLED SHARE-BASED PYAMENT TRANSACTION When the entity receives goods or services as consideration for equity instruments of the entity (including shares or share options). When the entity receives goods or services as consideration for equity instruments of the entity (including shares or share options).

CASH-SETTLED SHARE-BASED PAYMENT TRANSACTION The entity acquires goods or services by incurring a liability to transfer cash or other assets to the supplier of those goods or services for amounts that are based on the price (or value) of the entity's shares or other equity instruments of the entity. The entity acquires goods or services by incurring a liability to transfer cash or other assets to the supplier of those goods or services for amounts that are based on the price (or value) of the entity's shares or other equity instruments of the entity.

SHARE-BASED PAYMENT TRASACTION WITH CASH ALTERNATIVE The terms of the arrangement provide either the entity or the counterparty with the choice of whether the entity settles the transaction in cash (or other assets) or by issuing equity instruments The terms of the arrangement provide either the entity or the counterparty with the choice of whether the entity settles the transaction in cash (or other assets) or by issuing equity instruments

KEY AUDIT ISSUE Determining the fair value of the goods and services received by the entity Determining the fair value of the goods and services received by the entity Reliability of the estimate of the fair value of the goods and services received by the entity Reliability of the estimate of the fair value of the goods and services received by the entity

KEY AUDIT ASSERTIONS (ASA 500 PARAGRAPH 22) Assertions about classes of transactions and events Assertions about classes of transactions and events Occurrence – share-based payment transactions have been recorded and pertain to the entity Occurrence – share-based payment transactions have been recorded and pertain to the entity Completeness – all share-based payment transactions that should have been recorded have been recorded Completeness – all share-based payment transactions that should have been recorded have been recorded Accuracy – amounts relating to share-based payment have been recorded appropriately Accuracy – amounts relating to share-based payment have been recorded appropriately Assertions about account balances at the period end Assertions about account balances at the period end Valuation and allocation – shared-based payment amounts are appropriately recorded Valuation and allocation – shared-based payment amounts are appropriately recorded Assertions about presentation and disclosure Assertions about presentation and disclosure Classification and understandability – share-based payment is appropriately presented and described, and disclosures are clearly expressed Classification and understandability – share-based payment is appropriately presented and described, and disclosures are clearly expressed

SUFFICIENT APPROPRIATE AUDIT EVIDENCE Minutes of meeting Minutes of meeting ASX announcements (if any) ASX announcements (if any) Agreement / contract Agreement / contract Option pricing model (if required) Option pricing model (if required) External information eg External information eg Historical share price Historical share price Risk free interest rate Risk free interest rate

DISCLOSURES AASB paragraphs 44 to 52 AASB paragraphs 44 to 52 Disclosures from Big 4 Disclosures from Big 4 PWC – VALUE AIFRS Holdings Limited PWC – VALUE AIFRS Holdings Limited Note 53 (pages 274 to 278) Note 53 (pages 274 to 278) Deloitte – Elucidation Limited Deloitte – Elucidation Limited Note 44 (pages B164 to 166) Note 44 (pages B164 to 166) Note 22 on paragraph 51 disclosure Note 22 on paragraph 51 disclosure Ernst & Young – Endeavour (International) Limited Ernst & Young – Endeavour (International) Limited Note 38 (pages 203 to 208) Note 38 (pages 203 to 208) KPMG – Example Public Company Limited KPMG – Example Public Company Limited Note 30 (pages 249 to 254) Note 30 (pages 249 to 254)

OUR EXPERIENCE Equity-settled share-based payment transactions Equity-settled share-based payment transactions Listed companies Listed companies Interim report for the six months ended 31 December 2007 Interim report for the six months ended 31 December listed companies 18 listed companies 12 with share-based payments relating to issue of options to Directors, Employees and Consultants 12 with share-based payments relating to issue of options to Directors, Employees and Consultants 3 performed by external consultants 3 performed by external consultants 8 performed by company’s staff 8 performed by company’s staff 1 combination of external consultants & company’s staff 1 combination of external consultants & company’s staff 6 out of 12 resulted in adjustments to the value 6 out of 12 resulted in adjustments to the value

OUR EXPERIENCE Issues with unlisted options issued to Directors, Employees and Consultants Determining the fair value of the options issued Determining the fair value of the options issued Reliability of the estimate of fair value of these options Reliability of the estimate of fair value of these options

OUR EXPERIENCE According to AASB 2 paragraphs 16 and 17, if the market price for the calculation of the fair value is not available, the entity is required to use a valuation technique According to AASB 2 paragraphs 16 and 17, if the market price for the calculation of the fair value is not available, the entity is required to use a valuation technique A valuation technique available for measuring the options issued is the Options Pricing Model A valuation technique available for measuring the options issued is the Options Pricing Model Two common methods used for valuing the options under the Option Pricing Model are: Two common methods used for valuing the options under the Option Pricing Model are: Black Scholes Black Scholes Binomial Binomial

OUR EXPERIENCE Factors to take into account when using the option pricing model Factors to take into account when using the option pricing model o Exercise price of the option o Life of the option o Current share price o Expected volatility of the share price o Expected dividends o Risk-free interest rate For further information on the above, see AASB 2 – Appendix B (B11 to B41)

ISSUES ENCOUNTERED Current share price Current share price Grant date Grant date Expected volatility of the share price Expected volatility of the share price Risk-free interest rate Risk-free interest rate Discounting from the total amount Discounting from the total amount

EXAMPLES Company A Limited Company A Limited Company B Limited Company B Limited