Accounting for own shares - An analysis of a new equity instrument in Sweden-

Abstract

The possibility for companies to repurchase and hold own shares has been forbidden in Sweden for more than a century. On March 10th, 2000, the Swedish government abolished this prohibition and companies now have the possibility of using the equity instrument of own shares.

This demanded for a revision of the 7th Chapter of the Companies Act and, to some extent, also the Annual Accounts Act, which we have explored. We have also been studying international accounting methods for own shares. Furthermore, , international norms and recommendations that have impacted the design of the Swedish regulation on how to account for own shares have also been explored.

In the empirical part, we discovered how this new equity instrument influences companies. Advantages and disadvantages have been discussed, as well as if own shares is profitable for all parties. Standard setters and auditors have also been interviewed about this issue.

Through an analysis of the theoretical and empirical findings we presented how own shares shall be accounted for in Sweden. We further discovered that the Swedish regulation is somewhat too detailed within certain areas, which makes transactions with own shares somewhat more complicated than necessary. Even though the legislator did not consider protection for the minority, we have found a connection between own shares and this protection. We have analysed the cost-, par value- and EC-method and studied positive and negative features compared to the Swedish regulation of accounting. Our contribution with this thesis is an improved method of how the accounting for own shares could be conducted in Sweden.