International Financial Reporting Standard 2 Share‑based Payment (IFRS 2) is set out in paragraphs 1–64 and Appendices A–C. All the paragraphs have equal authority. Paragraphs in bold type state the main principles. Terms defined in Appendix A are in italics the first time they appear in the Standard. Definitions of other terms are given in the Glossary for International Financial Reporting Standards. IFRS 2 should be read in the context of its objective and the Basis for Conclusions, the Preface to IFRS Standards and the Conceptual Framework for Financial Reporting. IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors provides a basis for selecting and applying accounting policies in the absence of explicit guidance. [Refer:IAS 8 paragraphs 10–12]
1 | The objective of this IFRS is to specify the financial reporting by an entity when it undertakes a share‑based payment transaction. In particular, it requires an entity to reflect in its profit or loss and financial position the effects of share‑based payment transactions, including expenses associated with transactions in which share options are granted to employees. |
2 | An entity shall apply this IFRS in accounting for all share‑based payment transactions, whether or not the entity can identify specifically some or all of the goods or services received, including:
except as noted in paragraphs 3A–6. In the absence of specifically identifiable goods or services, other circumstances may indicate that goods or services have been (or will be) received, in which case this IFRS applies. [Refer:Basis for Conclusions paragraphs BC18A–BC18D] |
| E1 | [IFRIC® Update, May 2006, Agenda Decision, ‘IFRS 2 Share-based Payment—Scope of IFRS 2: Share plans with cash alternatives at the discretion of the entity’ The IFRIC considered whether an employee share plan in which the employer had the choice of settlement in cash or in shares, and the amount of the settlement did not vary with changes in the share price of the entity should be treated as a share‑based payment transaction within the scope of IFRS 2. The IFRIC noted that IFRS 2 defines a share‑based payment transaction as a transaction in which the entity receives goods or services as consideration for equity instruments of the entity or amounts that are based on the price of equity instruments of the entity. The IFRIC further noted that the definition of a share‑based payment transaction does not require the exposure of the entity to be linked to movements in the share price of the entity. Moreover, it is clear that IFRS 2 contemplates share‑based payment transactions in which the terms of the arrangement provide the entity with a choice of settlement, since they are specifically addressed in paragraphs 41–43 of IFRS 2. The IFRIC therefore believed that, although the amount of the settlement did not vary with changes in the share price of the entity, such share plans are share‑based payment transactions in accordance with IFRS 2 since the consideration may be equity instruments of the entity. The IFRIC also believed that, even in the extreme circumstances in which the entity was given a choice of settlement and the value of the shares that would be delivered was a fixed monetary amount, those share plans were still within the scope of IFRS 2. The IFRIC believed that, since the requirements of IFRS 2 were clear, the issue was not expected to create significant divergence in practice. The IFRIC therefore decided not to add the issue to the agenda.] |
3 | [Deleted] |
3A | A share‑based payment transaction may be settled by another group entity (or a shareholder of any group entity) on behalf of the entity receiving or acquiring the goods or services. Paragraph 2 also applies to an entity that
unless the transaction is clearly for a purpose other than payment for goods or services supplied to the entity receiving them. [Refer:
paragraphs 43A–43D, 63, 64 and B45–B61 Basis for Conclusions paragraphs BC19–BC22G and BC268A–BC268S] |
4 | For the purposes of this IFRS, a transaction with an employee (or other party) in his/her capacity as a holder of equity instruments of the entity is not a share‑based payment transaction. For example, if an entity grants all holders of a particular class of its equity instruments the right to acquire additional equity instruments of the entity at a price that is less than the fair value of those equity instruments, and an employee receives such a right because he/she is a holder of equity instruments of that particular class, the granting or exercise of that right is not subject to the requirements of this IFRS. |
5 | As noted in paragraph 2, this IFRS applies to share‑based payment transactions in which an entity acquires or receives goods or services. Goods includes inventories, consumables, property, plant and equipment, intangible assets and other non‑financial assets. [Refer:Basis for Conclusions paragraphs BC18A–BC18D] However, an entity shall not apply this IFRS to transactions in which the entity acquires goods as part of the net assets acquired in a business combination as defined by IFRS 3 Business Combinations (as revised in 2008),E2 in a combination of entities or businesses under common control as described in paragraphs B1–B4 of IFRS 3, or the contribution of a business on the formation of a joint venture as defined by IFRS 11 Joint Arrangements [Refer:Basis for Conclusions paragraphs BC24A–BC24D]. Hence, equity instruments issued in a business combination in exchange for control of the acquiree are not within the scope of this IFRS. However, equity instruments granted to employees of the acquiree in their capacity as employees (eg in return for continued service) are within the scope of this IFRS. Similarly, the cancellation, replacement or other modification [Refer:paragraphs 26–29] of share‑based payment arrangements because of a business combination or other equity restructuring shall be accounted for in accordance with this IFRS. IFRS 3 provides guidance on determining whether equity instruments issued in a business combination are part of the consideration transferred in exchange for control of the acquiree (and therefore within the scope of IFRS 3) or are in return for continued service to be recognised in the post‑combination period (and therefore within the scope of this IFRS). [Refer:IFRS 3 paragraphs 51–53 and B50–B62] |
| E2 | [IFRIC® Update, March 2013, Agenda Decision, ‘IFRS 3 Business Combinations and IFRS 2 Share-based Payment—Accounting for reverse acquisitions that do not constitute a business’ The Interpretations Committee received requests for guidance on how to account for transactions in which the former shareholders of a non-listed operating entity become the majority shareholders of the combined entity by exchanging their shares for new shares of a listed non-operating entity. However, the transaction is structured such that the listed non-operating entity acquires the entire share capital of the non-listed operating entity. In the absence of a Standard that specifically applies to this transaction the Interpretations Committee observed that the analysed transaction has some features of a reverse acquisition under IFRS 3 because the former shareholders of the legal subsidiary obtain control of the legal parent. Consequently, it is appropriate to apply by analogy, in accordance with paragraphs 10–12 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, the guidance in paragraphs B19–B27 of IFRS 3 for reverse acquisitions. Application of the reverse acquisitions guidance by analogy results in the non-listed operating entity being identified as the accounting acquirer, and the listed non-operating entity being identified as the accounting acquiree. The Interpretations Committee noted that in applying the reverse acquisition guidance in paragraph B20 of IFRS 3 by analogy, the accounting acquirer is deemed to have issued shares to obtain control of the acquiree. If the listed non-operating entity qualifies as a business on the basis of the guidance in paragraph B7 of IFRS 3, IFRS 3 would be applicable to the transaction. However, if the listed non-operating entity is not a business, the transaction is not a business combination and is therefore not within the scope of IFRS 3. Because the analysed transaction is not within the scope of IFRS 3, the Interpretations Committee noted that it is therefore a share-based payment transaction which should be accounted for in accordance with IFRS 2. The Interpretations Committee observed that on the basis of the guidance in paragraph 13A of IFRS 2, any difference in the fair value of the shares deemed to have been issued by the accounting acquirer and the fair value of the accounting acquiree’s identifiable net assets represents a service received by the accounting acquirer. The Interpretations Committee concluded that, regardless of the level of monetary or non-monetary assets owned by the non-listed operating entity, the entire difference should be considered to be payment for a service of a stock exchange listing for its shares, and that no amount should be considered a cost of raising capital. The Interpretations Committee observed that the service received in the form of a stock exchange listing does not meet the definition of an intangible asset because it is not “identifiable” in accordance with paragraph 12 of IAS 38 Intangible Assets (ie it is not separable). The service received also does not meet the definition of an asset that should be recognised in accordance with other Standards and the Conceptual Framework. The Interpretations Committee also observed that on the basis of the guidance in paragraph 8 of IFRS 2 which states that “when the goods or services received or acquired in a share-based payment transaction do not qualify for recognition as assets, they shall be recognised as expenses”, the cost of the service received is recognised as an expense. On the basis of the analysis above, the Interpretations Committee determined that, in the light of the existing IFRS requirements, neither an interpretation nor an amendment to Standards was necessary and consequently decided not to add this issue to its agenda.] |
6 | This IFRS does not apply to share‑based payment transactions in which the entity receives or acquires goods or services under a contract within the scope of paragraphs 8–10 of IAS 32 Financial Instruments: Presentation (as revised in 2003)1 or paragraphs 2.4–2.7 of IFRS 9 Financial Instruments. |
6A | This IFRS uses the term ‘fair value’ in a way that differs in some respects from the definition of fair value in IFRS 13 Fair Value Measurement. Therefore, when applying IFRS 2 an entity measures fair value in accordance with this IFRS, not IFRS 13. [Refer:IFRS 13 paragraph 6(a)]
|
| E3 | [IFRIC® Update, November 2006, Agenda Decision, ‘IFRS 2 Share-based Payment—Employee benefit trusts in the separate financial statements of the sponsor’ The IFRIC discussed the application to separate financial statements of an issue that had been submitted in connection with the amendment of SIC‑12 Consolidation—Special Purpose Entities to include within its scope special purpose entities established in connection with equity compensation plans. The issue related to an employee benefit trust (or similar entity) that has been set up by a sponsoring entity specifically to facilitate the transfer of its equity instruments to its employees under a share‑based payment arrangement. The trust holds shares of the sponsoring entity that are acquired by the trust from the sponsoring entity or from the market. Acquisition of those shares is funded either by the sponsoring entity or by a bank loan, usually guaranteed by the sponsoring entity. In most circumstances, the sponsoring entity controls the employee benefit trust. In some circumstances, the sponsoring entity may also have a direct control of the shares held by the trust. The issue is whether guidance should be developed on the accounting treatment for the sponsor’s equity instruments held by the employee benefit trust in the sponsor’s separate financial statements. The IFRIC discussed whether the employee benefit trust should be treated as an extension of the sponsoring entity, such as a branch, or as a separate entity. The IFRIC noted that the notion of ‘entity’ is defined neither in the Framework nor in IAS 27 Consolidated and Separate Financial Statements. The IFRIC then discussed whether the sponsoring entity should, in its separate financial statements, account for the net investment according to IAS 27 or rather for the rights and obligations arising from the assets and liabilities of the trust. The IFRIC noted that, in some circumstances, the sponsoring entity may have direct control of the shares held by the trust. The IFRIC also noted that the guidance included in the Framework and IAS 27 does not address the accounting for the shares held by the trust in the sponsor’s separate financial statements. The IFRIC concluded that it could not reach a consensus on this matter on a timely basis, given the different types of trusts and trust arrangements that exist. The IFRIC noted that this issue related to two active projects of the IASB: the Conceptual Framework and the revision of IAS 27 in the course of the Consolidation project. For these reasons, the IFRIC decided not to add the issue to its agenda. (Since this agenda decision, IAS 27 has been amended and SIC‑12 was incorporated into IFRS 10.)] |
7 | An entity shall recognise the goods or services received or acquired in a share‑based payment transaction when it obtains the goods or as the services are received. The entity shall recognise a corresponding increase in equity if the goods or services were received in an equity‑settled share‑based payment transaction, or a liability if the goods or services were acquired in a cash‑settled share‑based payment transaction. |
8 | When the goods or services received or acquired in a share‑based payment transaction do not qualify for recognition as assets, they shall be recognised as expenses. |
9 | Typically, an expense arises from the consumption of goods or services. For example, services are typically consumed immediately, in which case an expense is recognised as the counterparty renders service. Goods might be consumed over a period of time or, in the case of inventories, sold at a later date, in which case an expense is recognised when the goods are consumed or sold. However, sometimes it is necessary to recognise an expense before the goods or services are consumed or sold, because they do not qualify for recognition as assets. For example, an entity might acquire goods as part of the research phase [Refer:IAS 38 paragraphs 54–56] of a project to develop a new product. Although those goods have not been consumed, they might not qualify for recognition as assets under the applicable IFRS. |
10 | For equity‑settled share‑based payment transactions, the entity shall measure the goods or services received, and the corresponding increase in equity, directly, at the fair value [Refer:paragraphs B1–B41] of the goods or services received, unless that fair value cannot be estimated reliably. If the entity cannot estimate reliably the fair value of the goods or services received, the entity shall measure their value, and the corresponding increase in equity, indirectly, by reference to2 the fair value of the equity instruments granted. |
11 | To apply the requirements of paragraph 10 to transactions with employees and others providing similar services,3 the entity shall measure the fair value [Refer:Appendix B and Basis for Conclusions paragraphs BC85–BC87] of the services received by reference to the fair value of the equity instruments granted, because typically it is not possible to estimate reliably the fair value of the services received, as explained in paragraph 12. The fair value of those equity instruments shall be measured at grant date. |
12 | Typically, shares, share options or other equity instruments are granted to employees as part of their remuneration package, in addition to a cash salary and other employment benefits. Usually, it is not possible to measure directly the services received for particular components of the employee’s remuneration package. It might also not be possible to measure the fair value of the total remuneration package independently, without measuring directly the fair value of the equity instruments granted. Furthermore, shares or share options are sometimes granted as part of a bonus arrangement, rather than as a part of basic remuneration, eg as an incentive to the employees to remain in the entity’s employ or to reward them for their efforts in improving the entity’s performance. By granting shares or share options, in addition to other remuneration, the entity is paying additional remuneration to obtain additional benefits. Estimating the fair value of those additional benefits is likely to be difficult. Because of the difficulty of measuring directly the fair value of the services received, the entity shall measure the fair value of the employee services received by reference to the fair value of the equity instruments granted. |
13 | To apply the requirements of paragraph 10 to transactions with parties other than employees, there shall be a rebuttable presumption that the fair value of the goods or services received can be estimated reliably. That fair value shall be measured at the date the entity obtains the goods or the counterparty renders service [Refer:Basis for Conclusions paragraphs BC88–BC105 and Implementation Guidance paragraphs IG5–IG7]. In rare cases, if the entity rebuts this presumption because it cannot estimate reliably the fair value of the goods or services received, the entity shall measure the goods or services received, and the corresponding increase in equity, indirectly, by reference to the fair value of the equity instruments [Refer:paragraph 13A and Basis for Conclusions paragraphs BC128D–BC128F] granted, measured at the date the entity obtains the goods or the counterparty renders service [Refer:paragraphs 24 and 25]. |
13A | In particular, if the identifiable consideration received (if any) by the entity appears to be less than the fair value of the equity instruments granted or liability incurred, typically this situation indicates that other consideration (ie unidentifiable goods or services) has been (or will be) received by the entityE4. The entity shall measure the identifiable goods or services received in accordance with this IFRS. The entity shall measure the unidentifiable goods or services received (or to be received) as the difference between the fair value of the share‑based payment and the fair value of any identifiable goods or services received (or to be received). The entity shall measure the unidentifiable goods or services received at the grant date. However, for cash‑settled transactions, the liability shall be remeasured at the end of each reporting period until it is settled in accordance with paragraphs 30–33. |
| E4 | [IFRIC® Update, July 2014, Agenda Decision, ‘IFRS 2 Share-based Payment—price difference between the institutional offer price and the retail offer price for shares in an initial public offering’ The Interpretations Committee received a request to clarify how an entity should account for a price difference between the institutional offer price and the retail offer price for shares issued in an initial public offering (IPO). The submitter refers to the fact that the final retail price could be different from the institutional price because of:
The submitter described a situation in which the issuer needs to fulfil a minimum number of shareholders to qualify for a listing under the stock exchange’s regulations in its jurisdiction. In achieving this minimum number the issuer may offer shares to retail investors at a discount from the price at which shares are sold to institutional investors. The submitter asked the Interpretations Committee to clarify whether the transaction should be analysed within the scope of IFRS 2. The Interpretations Committee considered whether the transaction analysed involves the receipt of identifiable or unidentifiable goods or services from the retail shareholder group and, therefore, whether it is a share-based payment transaction within the scope of IFRS 2. Paragraph 13A of IFRS 2 requires that if consideration received by the entity appears to be less than the fair value of the equity instruments granted or liability incurred, then this situation typically indicates that other consideration (ie unidentified goods or services) has been (or will be) received by the entity. The Interpretations Committee noted that applying this guidance requires judgement and consideration of the specific facts and circumstances of each transaction. In the circumstances underlying the submission, the Interpretations Committee observed that the entity issues shares at different prices to two different groups of investors (retail and institutional) for the purpose of raising funds, and that the difference, if any, between the retail price and the institutional price of the shares in the fact pattern appears to relate to the existence of different markets (one that is accessible to retail investors only and another one accessible to institutional investors only) instead of the receipt of additional goods or services, because the only relationship between the entity and the parties to whom the shares are issued is that of investee-investors. Consequently, the Interpretations Committee observed that the guidance in IFRS 2 is not applicable because there is no share-based payment transaction. The Interpretations Committee also noted that the situation considered is different to the issue on which it had issued an agenda decision in March 2013 (‘Accounting for reverse acquisitions that do not constitute a business’). In that fact pattern the Interpretations Committee observed that the accounting acquirer received a stock exchange listing from the listed non-operating entity, which the listed non-operating entity had previously possessed and was able to transfer to the accounting acquirer. In that agenda decision the Interpretations Committee concluded that any difference in the fair value of the shares deemed to have been issued by the accounting acquirer and the fair value of the accounting acquiree’s identifiable net assets represents a service received by the accounting acquirer. The Interpretations Committee observed that in the fact pattern considered in this submission the listing is not received from the institutional or retail shareholders. It further observed that the fair value of the shares issued to retail investors is different from the fair value of the shares issued to institutional investors. The fact that a regulatory requirement is met by virtue of issuing the retail shares does not indicate that unidentifiable goods or services were received from the purchasers. On the basis of this analysis, the Interpretations Committee determined that, in the light of the existing IFRS requirements, sufficient guidance exists and that neither an Interpretation nor an amendment to a Standard was necessary. Consequently, the Interpretations Committee decided not to add this issue to its agenda.] |
14 | If the equity instruments granted vest immediately, the counterparty is not required to complete a specified period of service before becoming unconditionally entitled to those equity instruments. In the absence of evidence to the contrary, the entity shall presume that services rendered by the counterparty as consideration for the equity instruments have been received. [Refer:Basis for Conclusions paragraphs BC200–BC202] In this case, on grant date the entity shall recognise the services received in full, with a corresponding increase in equity. |
15 | If the equity instruments granted do not vest until the counterparty completes a specified period of service, the entity shall presume that the services to be rendered by the counterparty as consideration for those equity instruments will be received in the future, during the vesting period. [Refer:Basis for Conclusions paragraphs BC200–BC202] The entity shall account for those services as they are rendered by the counterparty during the vesting period, with a corresponding increase in equity. For example:
|
16 | For transactions measured by reference to the fair value of the equity instruments granted, an entity shall measure the fair value of equity instruments granted at the measurement date, [Refer:Basis for Conclusions paragraphs BC88–BC128] based on market prices if available, taking into account the terms and conditions upon which those equity instruments were granted (subject to the requirements of paragraphs 19–22). |
17 | If market prices are not available, the entity shall estimate the fair value of the equity instruments granted using a valuation technique to estimate what the price of those equity instruments would have been on the measurement date in an arm’s length transaction between knowledgeable, willing parties. The valuation technique shall be consistent with generally accepted valuation methodologies for pricing financial instruments, and shall incorporate all factors and assumptions that knowledgeable, willing market participants would consider in setting the price (subject to the requirements of paragraphs 19–22). [Refer:Basis for Conclusions paragraphs BC129–BC199] |
18 | Appendix B [Refer:paragraphs B2–B41] contains further guidance on the measurement of the fair value of shares and share options, focusing on the specific terms and conditions that are common features of a grant of shares or share options to employees.E5 |
| E5 | [IFRIC® Update, November 2006, Agenda Decision, ‘IFRS 2 Share-based Payment—Fair value measurement of post‑vesting transfer restrictions’ The IFRIC was asked whether the estimated value of shares issued only to employees and subject to post‑vesting restrictions could be based on an approach that would look solely or primarily to an actual or synthetic market that consisted only of transactions between an entity and its employees and in which prices, for example, reflected an employee’s personal borrowing rate. The IFRIC was asked whether this approach was consistent with the requirements under IFRS 2. The IFRIC noted the requirements in paragraph B3 of Appendix B to IFRS 2, which states that ‘if the shares are subject to restrictions on transfer after vesting date, that factor shall be taken into account, but only to the extent that the post‑vesting restrictions affect the price that a knowledgeable, willing market participant would pay for that share. For example, if the shares are actively traded in a deep and liquid market, post‑vesting transfer restrictions may have little, if any, effect on the price that a knowledgeable, willing market participant would pay for those shares.’ Paragraph BC168 of the Basis for Conclusions on IFRS 2 notes that ‘the objective is to estimate the fair value of the share option, not the value from the employee’s perspective.’ Furthermore, paragraph B10 of Appendix B to IFRS 2 states that ‘factors that affect the value of the option from the individual employee’s perspective only are not relevant to estimating the price that would be set by a knowledgeable, willing market participant.’ The IFRIC noted that these paragraphs require consideration of actual or hypothetical transactions, not only with employees, but rather with all actual or potential market participants willing to invest in restricted shares that had been or might be offered to them. The IFRIC believed that the issue was not expected to create significant divergence in practice and that the requirements of IFRS 2 were clear. The IFRIC therefore decided not to add the issue to the agenda.] |
19 | A grant of equity instruments might be conditional upon satisfying specified vesting conditions. For example, a grant of shares or share options to an employee is typically conditional on the employee remaining in the entity’s employ for a specified period of time. There might be performance conditions that must be satisfied, such as the entity achieving a specified growth in profit or a specified increase in the entity’s share price. Vesting conditions, other than market conditions, shall not be taken into account when estimating the fair value of the shares or share options at the measurement date. Instead, vesting conditions, other than market conditions, shall be taken into account by adjusting the number of equity instruments included in the measurement of the transaction amount so that, ultimately, the amount recognised for goods or services received as consideration for the equity instruments granted shall be based on the number of equity instruments that eventually vest. Hence, on a cumulative basis, no amount is recognised for goods or services received if the equity instruments granted do not vest because of failure to satisfy a vesting condition, other than a market condition, for example, the counterparty fails to complete a specified service period, or a performance condition is not satisfied, subject to the requirements of paragraph 21. [Refer:IG examples 1A–3] |
20 | To apply the requirements of paragraph 19, the entity shall recognise an amount for the goods or services received during the vesting period based on the best available estimate of the number of equity instruments expected to vest [Refer:IG example 1A scenario 1] and shall revise that estimate, if necessary, if subsequent information indicates that the number of equity instruments expected to vest differs from previous estimates. [Refer:IG example 1A scenario 2 and example 3] On vesting date, the entity shall revise the estimate to equal the number of equity instruments that ultimately vested, subject to the requirements of paragraph 21. |
21 | Market conditions, such as a target share price upon which vesting (or exercisability) is conditioned, shall be taken into account when estimating the fair value of the equity instruments granted. Therefore, for grants of equity instruments with market conditions, the entity shall recognise the goods or services received from a counterparty who satisfies all other vesting conditions (eg services received from an employee who remains in service for the specified period of service), irrespective of whether that market condition is satisfied. [Refer:IG example 5] |
21A | Similarly, an entity shall take into account all non‑vesting conditions when estimating the fair value of the equity instruments granted. Therefore, for grants of equity instruments with non‑vesting conditions, the entity shall recognise the goods or services received from a counterparty that satisfies all vesting conditions that are not market conditions (eg services received from an employee who remains in service for the specified period of service), irrespective of whether those non‑vesting conditions are satisfied. |
22 | For options with a reload feature, the reload feature shall not be taken into account when estimating the fair value of options granted at the measurement date. Instead, a reload option shall be accounted for as a new option grant, if and when a reload option is subsequently granted. |
23 | Having recognised the goods or services received in accordance with paragraphs 10–22, and a corresponding increase in equity, the entity shall make no subsequent adjustment to total equity after vesting date. For example, the entity shall not subsequently reverse the amount recognised for services received from an employee if the vested equity instruments are later forfeited or, in the case of share options, the options are not exercised. However, this requirement does not preclude the entity from recognising a transfer within equity, ie a transfer from one component of equity to another. |
24 | The requirements in paragraphs 16–23 apply when the entity is required to measure a share‑based payment transaction by reference to the fair value of the equity instruments granted. In rare cases, the entity may be unable to estimate reliably the fair value of the equity instruments granted at the measurement date, in accordance with the requirements in paragraphs 16–22. In these rare cases only, the entity shall instead:
|
25 | If an entity applies paragraph 24, it is not necessary to apply paragraphs 26–29, because any modifications to the terms and conditions on which the equity instruments were granted will be taken into account when applying the intrinsic value method set out in paragraph 24. However, if an entity settles a grant of equity instruments to which paragraph 24 has been applied:
|
26 | An entity might modify the terms and conditions on which the equity instruments were granted. For example, it might reduce the exercise price of options granted to employees (ie reprice the options), which increases the fair value of those options. [Refer:Implementation Guidance paragraph IG15 and IG example 7] The requirements in paragraphs 27–29 to account for the effects of modifications are expressed in the context of share‑based payment transactions with employees. However, the requirements shall also be applied to share‑based payment transactions with parties other than employees that are measured by reference to the fair value of the equity instruments granted. In the latter case, any references in paragraphs 27–29 to grant date shall instead refer to the date the entity obtains the goods or the counterparty renders service. |
27 | The entity shall recognise, as a minimum, the services received measured at the grant date fair value of the equity instruments granted, unless those equity instruments do not vest because of failure to satisfy a vesting condition (other than a market condition) that was specified at grant date. This applies irrespective of any modifications to the terms and conditions on which the equity instruments were granted, or a cancellation or settlement of that grant of equity instruments. [Refer:IG example 8] In addition, the entity shall recognise the effects of modifications that increase the total fair value of the share‑based payment arrangement or are otherwise beneficial to the employee. Guidance on applying this requirement is given in Appendix B. [Refer:paragraphs B42–B44]
|
28 | If a grant of equity instruments is cancelled or settled during the vesting period (other than a grant cancelled by forfeiture when the vesting conditions are not satisfied):
|
28A | If an entity or counterparty can choose whether to meet a non‑vesting condition, the entity shall treat the entity’s or counterparty’s failure to meet that non‑vesting condition during the vesting period as a cancellation. |
29 | If an entity repurchases vested equity instruments, the payment made to the employee shall be accounted for as a deduction from equity, except to the extent that the payment exceeds the fair value of the equity instruments repurchased, measured at the repurchase date. Any such excess shall be recognised as an expense. |
30 | For cash‑settled share‑based payment transactions, the entity shall measure the goods or services acquired and the liability incurred at the fair value of the liability, subject to the requirements of paragraphs 31–33D. Until the liability is settled, the entity shall remeasure the fair value of the liability at the end of each reporting period and at the date of settlement, with any changes in fair value recognised in profit or loss for the period. |
31 | For example, an entity might grant share appreciation rights to employees as part of their remuneration package, whereby the employees will become entitled to a future cash payment (rather than an equity instrument), based on the increase in the entity’s share price from a specified level over a specified period of time. Alternatively, an entity might grant to its employees a right to receive a future cash payment by granting to them a right to shares (including shares to be issued upon the exercise of share options [Refer:IG example 12]) that are redeemable, either mandatorily (for example, upon cessation of employment) or at the employee’s option. These arrangements are examples of cash-settled share-based payment transactions. Share appreciation rights are used to illustrate some of the requirements in paragraphs 32–33D; however, the requirements in those paragraphs apply to all cash-settled share-based payment transactions. |
32 | The entity shall recognise the services received, and a liability to pay for those services, as the employees render service. For example, some share appreciation rights vest immediately, and the employees are therefore not required to complete a specified period of service to become entitled to the cash payment. In the absence of evidence to the contrary, the entity shall presume that the services rendered by the employees in exchange for the share appreciation rights have been received. Thus, the entity shall recognise immediately the services received and a liability to pay for them. If the share appreciation rights do not vest until the employees have completed a specified period of service, the entity shall recognise the services received, and a liability to pay for them, as the employees render service during that period. [Refer:IG example 12]
|
33 | The liability shall be measured, initially and at the end of each reporting period until settled, at the fair value of the share appreciation rights, by applying an option pricing model, [Refer:paragraphs B11–B41] taking into account the terms and conditions on which the share appreciation rights were granted, and the extent to which the employees have rendered service to date—subject to the requirements of paragraphs 33A–33D. An entity might modify the terms and conditions on which a cash-settled share-based payment is granted. Guidance for a modification of a share-based payment transaction that changes its classification from cash-settled to equity-settled is given in paragraphs B44A–B44C in Appendix B. |
33A | A cash-settled share-based payment transaction might be conditional upon satisfying specified vesting conditions. There might be performance conditions that must be satisfied, such as the entity achieving a specified growth in profit or a specified increase in the entity’s share price. Vesting conditions, other than market conditions, shall not be taken into account when estimating the fair value of the cash-settled share-based payment at the measurement date. Instead, vesting conditions, other than market conditions, shall be taken into account by adjusting the number of awards included in the measurement of the liability arising from the transaction. |
33B | To apply the requirements in paragraph 33A, the entity shall recognise an amount for the goods or services received during the vesting period. That amount shall be based on the best available estimate of the number of awards that are expected to vest. The entity shall revise that estimate, if necessary, if subsequent information indicates that the number of awards that are expected to vest differs from previous estimates. On the vesting date, the entity shall revise the estimate to equal the number of awards that ultimately vested. |
33C | Market conditions, such as a target share price upon which vesting (or exercisability) is conditioned, as well as non-vesting conditions, shall be taken into account when estimating the fair value of the cash-settled share-based payment granted and when remeasuring the fair value at the end of each reporting period and at the date of settlement. |
33D | As a result of applying paragraphs 30–33C, the cumulative amount ultimately recognised for goods or services received as consideration for the cash-settled share-based payment is equal to the cash that is paid. |
33E | Tax laws or regulations may oblige an entity to withhold an amount for an employee’s tax obligation associated with a share-based payment and transfer that amount, normally in cash, to the tax authority on the employee’s behalf. To fulfil this obligation, the terms of the share-based payment arrangement may permit or require the entity to withhold the number of equity instruments equal to the monetary value of the employee’s tax obligation from the total number of equity instruments that otherwise would have been issued to the employee upon exercise (or vesting) of the share-based payment (ie the share-based payment arrangement has a ‘net settlement feature’). |
33F | As an exception to the requirements in paragraph 34, the transaction described in paragraph 33E shall be classified in its entirety as an equity-settled share-based payment transaction if it would have been so classified in the absence of the net settlement feature. |
33G | The entity applies paragraph 29 of this Standard to account for the withholding of shares to fund the payment to the tax authority in respect of the employee's tax obligation associated with the share-based payment. Therefore, the payment made shall be accounted for as a deduction from equity for the shares withheld, except to the extent that the payment exceeds the fair value at the net settlement date of the equity instruments withheld. |
33H | The exception in paragraph 33F does not apply to:
|
| E6 | [IFRIC® Update, January 2010, Agenda Decision, ‘IFRS 2 Share-based Payment—Transactions in which the manner of settlement is contingent on future events’ The IFRIC received a request to clarify the classification and measurement of share‑based payment transactions for which the manner of settlement is contingent on either:
The IFRIC noted that paragraphs 34–43 of IFRS 2 provide guidance only on share‑based payment transactions in which the terms of the arrangement provide the counterparty or the entity with a choice of settlement. The IFRIC noted that IFRS 2 does not provide guidance on share‑based payment transactions for which the manner of settlement is contingent on a future event that is outside the control of both the entity and the counterparty. The IFRIC noted that many other issues have been raised concerning the classification and measurement of share‑based payments as cash‑settled or equity‑settled. The IFRIC therefore noted that it would be more appropriate for these issues to be considered collectively as part of a post‑implementation review of IFRS 2. Therefore, the IFRIC decided not to add these issues to its agenda and recommended that those issues be dealt with by the IASB in a post‑implementation review of IFRS 2.] |
34 | For share‑based payment transactions in which 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 entity shall account for that transaction, or the components of that transaction, as a cash‑settled share‑based payment transaction [Refer:paragraphs 30–33] if, and to the extent that, the entity has incurred a liability to settle in cash or other assets, or as an equity‑settled share‑based payment transaction [Refer:paragraphs 10–29] if, and to the extent that, no such liability has been incurred. |
| E7 | [IFRIC® Update, May 2006, Agenda Decision, ‘IFRS 2 Share-based Payment—Share plans with cash alternatives at the discretion of employees: grant date and vesting periods’ The IFRIC considered an employee share plan in which employees were given a choice of having cash at one date or shares at a later date. At the date the transactions were entered into, the parties involved understood the terms and conditions of the plans including the formula that would be used to determine the amount of cash to be paid to each individual employee (or the number of shares to be delivered to each individual employee) but the exact amount of cash or number of shares would be known only at a future date. The IFRIC was asked to confirm the grant date and vesting period for such share plans. The IFRIC noted that IFRS 2 defines grant date as the date when there is a shared understanding of the terms and conditions. Moreover, IFRS 2 does not require grant date to be the date when the exact amount of cash to be paid (or the exact number of shares to be delivered) is known to the parties involved. The IFRIC further noted that share‑based payment transactions with cash alternatives at the discretion of the counterparty are addressed in paragraphs 34–40 of IFRS 2. Paragraph 35 of IFRS 2 states that, if an entity has granted the counterparty the right to choose whether a share‑based payment transaction is settled in cash or by issuing equity instruments, the entity has granted a compound financial instrument, which includes a debt component (ie the counterparty’s right to demand cash payment) and an equity component (ie the counterparty’s right to demand settlement in equity instruments). Paragraph 38 of IFRS 2 states that the entity shall account separately for goods or services received or acquired in respect of each component of the compound financial instrument. The IFRIC therefore believed that the vesting period of the equity component and that of the debt component should be determined separately and the vesting period of each component might be different. The IFRIC believed that, since ‘grant date’ is defined in IFRS 2 and the requirements set out in paragraphs 34–40 of IFRS 2 were clear, the issues were not expected to create significant divergence in practice. The IFRIC therefore decided that the issues should not be added to the agenda.] |
35 | If an entity has granted the counterparty the right to choose whether a share‑based payment transaction is settled in cash4 or by issuing equity instruments, the entity has granted a compound financial instrument, [Refer:IAS 32 paragraphs 28–32] which includes a debt component (ie the counterparty’s right to demand payment in cash) and an equity component (ie the counterparty’s right to demand settlement in equity instruments rather than in cash). For transactions with parties other than employees, in which the fair value of the goods or services received is measured directly, the entity shall measure the equity component of the compound financial instrument as the difference between the fair value of the goods or services received and the fair value of the debt component, at the date when the goods or services are received. |
36 | For other transactions, including transactions with employees, the entity shall measure the fair value of the compound financial instrument at the measurement date, taking into account the terms and conditions on which the rights to cash or equity instruments were granted. |
37 | To apply paragraph 36, the entity shall first measure the fair value of the debt component, and then measure the fair value of the equity component—taking into account that the counterparty must forfeit the right to receive cash in order to receive the equity instrument. [Refer:Implementation Guidance paragraphs IG20–IG22 and IG example 13] The fair value of the compound financial instrument is the sum of the fair values of the two components. However, share‑based payment transactions in which the counterparty has the choice of settlement are often structured so that the fair value of one settlement alternative is the same as the other. For example, the counterparty might have the choice of receiving share options or cash‑settled share appreciation rights. In such cases, the fair value of the equity component is zero, and hence the fair value of the compound financial instrument is the same as the fair value of the debt component. Conversely, if the fair values of the settlement alternatives differ, the fair value of the equity component usually will be greater than zero, in which case the fair value of the compound financial instrument will be greater than the fair value of the debt component. |
38 | The entity shall account separately for the goods or services received or acquired in respect of each component of the compound financial instrument. For the debt component, the entity shall recognise the goods or services acquired, and a liability to pay for those goods or services, as the counterparty supplies goods or renders service, in accordance with the requirements applying to cash‑settled share‑based payment transactions (paragraphs 30–33). For the equity component (if any), the entity shall recognise the goods or services received, and an increase in equity, as the counterparty supplies goods or renders service, in accordance with the requirements applying to equity‑settled share‑based payment transactions (paragraphs 10–29). |
39 | At the date of settlement, the entity shall remeasure the liability to its fair value. If the entity issues equity instruments on settlement rather than paying cash, the liability shall be transferred direct to equity, as the consideration for the equity instruments issued. [Refer:Implementation Guidance example 13 scenario 2] |
40 | If the entity pays in cash on settlement rather than issuing equity instruments, that payment shall be applied to settle the liability in full. Any equity component previously recognised shall remain within equity. By electing to receive cash on settlement, the counterparty forfeited the right to receive equity instruments. However, this requirement does not preclude the entity from recognising a transfer within equity, ie a transfer from one component of equity to another. [Refer:Implementation Guidance example 13 scenario 1] |
| E8 | [IFRIC® Update, May 2006, Agenda Decision, ‘IFRS 2 Share-based Payment—Scope of IFRS 2: Share plans with cash alternatives at the discretion of the entity’ The IFRIC considered whether an employee share plan in which the employer had the choice of settlement in cash or in shares, and the amount of the settlement did not vary with changes in the share price of the entity should be treated as a share‑based payment transaction within the scope of IFRS 2. The IFRIC noted that IFRS 2 defines a share‑based payment transaction as a transaction in which the entity receives goods or services as consideration for equity instruments of the entity or amounts that are based on the price of equity instruments of the entity. The IFRIC further noted that the definition of a share‑based payment transaction does not require the exposure of the entity to be linked to movements in the share price of the entity. Moreover, it is clear that IFRS 2 contemplates share‑based payment transactions in which the terms of the arrangement provide the entity with a choice of settlement, since they are specifically addressed in paragraphs 41–43 of IFRS 2. The IFRIC therefore believed that, although the amount of the settlement did not vary with changes in the share price of the entity, such share plans are share‑based payment transactions in accordance with IFRS 2 since the consideration may be equity instruments of the entity. The IFRIC also believed that, even in the extreme circumstances in which the entity was given a choice of settlement and the value of the shares that would be delivered was a fixed monetary amount, those share plans were still within the scope of IFRS 2. The IFRIC believed that, since the requirements of IFRS 2 were clear, the issue was not expected to create significant divergence in practice. The IFRIC therefore decided not to add the issue to the agenda.] |
41 | For a share‑based payment transaction in which the terms of the arrangement provide an entity with the choice of whether to settle in cash or by issuing equity instruments, the entity shall determine whether it has a present obligation to settle in cash and account for the share‑based payment transaction accordingly. The entity has a present obligation to settle in cash if the choice of settlement in equity instruments has no commercial substance (eg because the entity is legally prohibited from issuing shares), or the entity has a past practice or a stated policy of settling in cash, or generally settles in cash whenever the counterparty asks for cash settlement. |
42 | If the entity has a present obligation to settle in cash, it shall account for the transaction in accordance with the requirements applying to cash‑settled share‑based payment transactions, in paragraphs 30–33. |
43 | If no such obligation exists, the entity shall account for the transaction in accordance with the requirements applying to equity‑settled share‑based payment transactions, in paragraphs 10–29. Upon settlement:
|
43A | For share‑based payment transactions among group entities, in its separate or individual financial statements, the entity receiving the goods or services shall measure the goods or services received as either an equity‑settled or a cash‑settled share‑based payment transaction by assessing:
The amount recognised by the entity receiving the goods or services may differ from the amount recognised by the consolidated group or by another group entity settling the share‑based payment transaction. |
43B | The entity receiving the goods or services shall measure the goods or services received as an equity‑settled share‑based payment transaction when:
The entity shall subsequently remeasure such an equity‑settled share‑based payment transaction only for changes in non‑market vesting conditions in accordance with paragraphs 19–21. [Refer:Implementation Guidance paragraph IG22A (including IG example 14)] In all other circumstances, the entity receiving the goods or services shall measure the goods or services received as a cash‑settled share‑based payment transaction. [Refer:paragraphs B55 and B60] |
43C | The entity settling a share‑based payment transaction when another entity in the group receives the goods or services shall recognise the transaction as an equity‑settled share‑based payment transaction only if it is settled in the entity’s own equity instruments. Otherwise, the transaction shall be recognised as a cash‑settled share‑based payment transaction. |
43D | Some group transactions involve repayment arrangements that require one group entity to pay another group entity for the provision of the share‑based payments to the suppliers of goods or services. In such cases, the entity that receives the goods or services shall account for the share‑based payment transaction in accordance with paragraph 43B regardless of intragroup repayment arrangements.E9 |
| E9 | [IFRIC® Update, May 2013, Agenda Decision, ‘IFRS 2 Share-based Payment—Timing of the recognition of intercompany recharges’ The Interpretations Committee received a request for clarification about IFRS 2 Share-based Payment relating to intragroup recharges made in respect of share-based payments. In the submitter’s example, the parent company of an international group grants share-based awards to the employees of its subsidiaries. The obligation to settle these awards is the parent’s. The awards are based on the employee’s service to the subsidiary. The subsidiary and the parent both recognise the share-based transaction in accordance with IFRS 2—typically over the vesting period of the awards. The parent has also entered into recharge agreements with its subsidiaries that require the subsidiaries to pay the parent the value of the share-based awards upon settlement of the awards by the parent. The submitter asked whether the subsidiary’s liability to its parent in respect of these charges should be recognised from the date of grant of the award or at the date of exercise of the award. Outreach conducted suggests that there is diversity in practice in the recognition of these liabilities. Some respondents view the recharge and the share-based payments as linked and recognise both from the date of grant over the vesting period. Others think that the recharge is a separate transaction recognised by analogy with liabilities, the distribution of equity or as an executory contract. When discussing accounting for the intercompany recharge transaction, the Interpretations Committee was concerned at the breadth of the topic. It thought that resolving this issue would require it to address the accounting for intragroup payment arrangements generally within the context of common control and that any conclusions drawn could have unintended consequences on the treatment of other types of intercompany transactions. In the absence of guidance about intercompany transactions within existing Standards and the Conceptual Framework, they did not think that they would be able to resolve this issue efficiently. For that reason, the Interpretations Committee decided not to add this issue to its agenda.] |
44 | An entity shall disclose information that enables users [Refer:Conceptual Framework paragraphs 1.2–1.10 and 2.36] of the financial statements to understand the nature and extent of share‑based payment arrangements that existed during the period.
|
45 | To give effect to the principle in paragraph 44, the entity shall disclose at least the following:
|
46 | An entity shall disclose information that enables users of the financial statements to understand how the fair value of the goods or services received, or the fair value of the equity instruments granted, during the period was determined.
|
47 | If the entity has measured the fair value of goods or services received as consideration for equity instruments of the entity indirectly, by reference to the fair value of the equity instruments granted, to give effect to the principle in paragraph 46, the entity shall disclose at least the following:
|
48 | If the entity has measured directly the fair value of goods or services received during the period, the entity shall disclose how that fair value was determined, eg whether fair value was measured at a market price for those goods or services.
|
49 | If the entity has rebutted [Refer:paragraph 13A and Basis for Conclusions paragraphs BC128D–BC128F] the presumption in paragraph 13, [Refer:paragraphs 24 and 25] it shall disclose that fact, and give an explanation of why the presumption was rebutted.
|
50 | An entity shall disclose information that enables users [Refer:Conceptual Framework paragraphs 1.2–1.10 and 2.36] of the financial statements to understand the effect of share‑based payment transactions on the entity’s profit or loss for the period and on its financial position.
|
51 | To give effect to the principle in paragraph 50, the entity shall disclose at least the following:
|
52 | If the information required to be disclosed by this Standard does not satisfy the principles in paragraphs 44, 46 and 50, the entity shall disclose such additional information as is necessary to satisfy them. For example, if an entity has classified any share-based payment transactions as equity-settled in accordance with paragraph 33F, the entity shall disclose an estimate of the amount that it expects to transfer to the tax authority to settle the employee’s tax obligation when it is necessary to inform users about the future cash flow effects associated with the share-based payment arrangement.
|
53 | For equity‑settled share‑based payment transactions, the entity shall apply this IFRS to grants of shares, share options or other equity instruments that were granted after 7 November 2002 and had not yet vested at the effective date of this IFRS. |
54 | The entity is encouraged, but not required, to apply this IFRS to other grants of equity instruments if the entity has disclosed publicly the fair value of those equity instruments, determined at the measurement date. |
55 | For all grants of equity instruments to which this IFRS is applied, the entity shall restate comparative information and, where applicable, adjust the opening balance of retained earnings for the earliest period presented. |
56 | For all grants of equity instruments to which this IFRS has not been applied (eg equity instruments granted on or before 7 November 2002), the entity shall nevertheless disclose the information required by paragraphs 44 and 45. |
57 | If, after the IFRS becomes effective, an entity modifies the terms or conditions of a grant of equity instruments to which this IFRS has not been applied, the entity shall nevertheless apply paragraphs 26–29 to account for any such modifications. |
58 | For liabilities arising from share‑based payment transactions existing at the effective date of this IFRS, the entity shall apply the IFRS retrospectively. [Refer:IAS 8 paragraph 5 (definition of retrospective application)] For these liabilities, the entity shall restate comparative information, [Refer:IAS 1 paragraphs 38–44] including adjusting the opening balance of retained earnings in the earliest period presented for which comparative information has been restated, except that the entity is not required to restate comparative information to the extent that the information relates to a period or date that is earlier than 7 November 2002. |
59 | The entity is encouraged, but not required, to apply retrospectively the IFRS to other liabilities arising from share‑based payment transactions, for example, to liabilities that were settled during a period for which comparative information [Refer:IAS 1 paragraphs 38–44] is presented. |
59A | An entity shall apply the amendments in paragraphs 30–31, 33–33H and B44A–B44C as set out below. Prior periods shall not be restated.
|
59B | Notwithstanding the requirements in paragraph 59A, an entity may apply the amendments in paragraph 63D retrospectively, subject to the transitional provisions in paragraphs 53–59 of this Standard, in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors if and only if it is possible without hindsight. [Refer:Basis for Conclusions paragraph BC237L] If an entity elects retrospective application, it must do so for all of the amendments made by Classification and Measurement of Share-based Payment Transactions (Amendments to IFRS 2). |
60 | An entity shall apply this IFRS for annual periods beginning on or after 1 January 2005. Earlier application is encouraged. If an entity applies the IFRS for a period beginning before 1 January 2005, it shall disclose that fact. |
61 | IFRS 3 (as revised in 2008) and Improvements to IFRSs issued in April 2009 amended paragraph 5. An entity shall apply those amendments for annual periods beginning on or after 1 July 2009. Earlier application is permitted. If an entity applies IFRS 3 (revised 2008) for an earlier period, the amendments shall also be applied for that earlier period. |
62 | An entity shall apply the following amendments retrospectively in annual periods beginning on or after 1 January 2009:
Earlier application is permitted. If an entity applies these amendments for a period beginning before 1 January 2009, it shall disclose that fact. |
63 | An entity shall apply the following amendments made by Group Cash‑settled Share‑based Payment Transactions issued in June 2009 retrospectively, subject to the transitional provisions in paragraphs 53–59, in accordance with IAS 8 for annual periods beginning on or after 1 January 2010:
If the information necessary for retrospective application is not available, an entity shall reflect in its separate or individual financial statements the amounts previously recognised in the group’s consolidated financial statements. Earlier application is permitted. If an entity applies the amendments for a period beginning before 1 January 2010, it shall disclose that fact. |
63A | IFRS 10 Consolidated Financial Statements and IFRS 11, issued in May 2011, amended paragraph 5 and Appendix A. An entity shall apply those amendments when it applies IFRS 10 and IFRS 11. |
63B | Annual Improvements to IFRSs 2010–2012 Cycle, issued in December 2013, amended paragraphs 15 and 19. In Appendix A, the definitions of ‘vesting conditions’ and ‘market condition’ were amended and the definitions of ‘performance condition’ and ‘service condition’ were added. An entity shall prospectively apply that amendment to share-based payment transactions for which the grant date is on or after 1 July 2014. [Refer:Basis for Conclusions paragraph BC370] Earlier application is permitted. If an entity applies that amendment for an earlier period it shall disclose that fact. |
63C | IFRS 9, as issued in July 2014, amended paragraph 6. An entity shall apply that amendment when it applies IFRS 9. |
63D | Classification and Measurement of Share-based Payment Transactions (Amendments to IFRS 2), issued in June 2016, amended paragraphs 19, 30–31, 33, 52 and 63 and added paragraphs 33A–33H, 59A–59B, 63D and B44A–B44C and their related headings. An entity shall apply those amendments for annual periods beginning on or after 1 January 2018. Earlier application is permitted. If an entity applies the amendments for an earlier period, it shall disclose that fact. |
63E | Amendments to References to the Conceptual Framework in IFRS Standards, issued in 2018, amended the footnote to the definition of an equity instrument in Appendix A. An entity shall apply that amendment for annual periods beginning on or after 1 January 2020. Earlier application is permitted if at the same time an entity also applies all other amendments made by Amendments to References to the Conceptual Framework in IFRS Standards. An entity shall apply the amendment to IFRS 2 retrospectively, subject to the transitional provisions in paragraphs 53–59 of this Standard, in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. However, if an entity determines that retrospective application would be impracticable or would involve undue cost or effort, it shall apply the amendment to IFRS 2 by reference to paragraphs 23–28, 50–53 and 54F of IAS 8. |
64 | Group Cash‑settled Share‑based Payment Transactions issued in June 2009 supersedes IFRIC 8 Scope of IFRS 2 and IFRIC 11 IFRS 2—Group and Treasury Share Transactions. The amendments made by that document incorporated the previous requirements set out in IFRIC 8 and IFRIC 11 as follows:
Those requirements were applied retrospectively in accordance with the requirements of IAS 8, subject to the transitional provisions of IFRS 2. |
This appendix is an integral part of the IFRS.
A share‑based payment transaction in which 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 equity instruments (including shares or share options) of the entity or another group entity.
Individuals who render personal services to the entity and either (a) the individuals are regarded as employees for legal or tax purposes, (b) the individuals work for the entity under its direction in the same way as individuals who are regarded as employees for legal or tax purposes, or (c) the services rendered are similar to those rendered by employees. For example, the term encompasses all management personnel, ie those persons having authority and responsibility for planning, directing and controlling the activities of the entity, including non‑executive directors.
A contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.5
The right (conditional or unconditional) to an equity instrument of the entity conferred by the entity on another party, under a share‑based payment arrangement.
A share‑based payment transaction in which the entity
(a) | receives goods or services as consideration for its own equity instruments (including shares or share options), or |
(b) | receives goods or services but has no obligation to settle the transaction with the supplier. |
The amount for which an asset could be exchanged, a liability settled, or an equity instrument granted could be exchanged, between knowledgeable, willing parties in an arm’s length transaction.
The date at which the entity and another party (including an employee) agree to a share‑based payment arrangement, being when the entity and the counterparty have a shared understanding of the terms and conditions of the arrangement. At grant date the entity confers on the counterparty the right to cash, other assets, or equity instruments of the entity, provided the specified vesting conditions, if any, are met. If that agreement is subject to an approval process (for example, by shareholders), grant date is the date when that approval is obtained.
The difference between the fair value of the shares to which the counterparty has the (conditional or unconditional) right to subscribe or which it has the right to receive, and the price (if any) the counterparty is (or will be) required to pay for those shares. For example, a share option with an exercise price of CU15,6 on a share with a fair value of CU20, has an intrinsic value of CU5.
A performance condition [Refer:Basis for Conclusions paragraph BC361] upon which the exercise price, vesting or exercisability of an equity instrument depends that is related to the market price (or value) of the entity’s equity instruments (or the equity instruments of another entity in the same group), such as:
(a) | attaining a specified share price or a specified amount of intrinsic value of a share option; or |
(b) | achieving a specified target that is based on the market price (or value) of the entity’s equity instruments (or the equity instruments of another entity in the same group) relative to an index of market prices of equity instruments of other entities. |
A market condition requires the counterparty to complete a specified period of service (ie a service condition); the service requirement can be explicit or implicit.
The date at which the fair value of the equity instruments granted is measured for the purposes of this IFRS. For transactions with employees and others providing similar services, the measurement date is grant date. For transactions with parties other than employees (and those providing similar services), the measurement date is the date the entity obtains the goods or the counterparty renders service.
A vesting condition that requires:
(a) | the counterparty to complete a specified period of service (ie a service condition); the service requirement can be explicit or implicit; [Refer:Basis for Conclusions paragraph BC346] and |
(b) | specified performance target(s) to be met while the counterparty is rendering the service required in (a). |
The period of achieving the performance target(s):
(a) | shall not extend beyond the end of the service period; [Refer:Basis for Conclusions paragraph BC344] and |
(b) | may start before the service period on the condition that the commencement date of the performance target is not substantially before the commencement of the service period. [Refer:Basis for Conclusions paragraphs BC342 and BC343] |
A performance target is defined by reference to: [Refer:Basis for Conclusions paragraph BC360]
(a) | the entity’s own operations (or activities) or the operations or activities of another entity in the same group (ie a non-market condition); or |
(b) | the price (or value) of the entity’s equity instruments or the equity instruments of another entity in the same group (including shares and share options) (ie a market condition). [Refer:Basis for Conclusions paragraphs BC337 and BC338] |
A performance target might relate either to the performance of the entity as a whole or to some part of the entity (or part of the group), such as a division or an individual employee.
A feature that provides for an automatic grant of additional share options whenever the option holder exercises previously granted options using the entity’s shares, rather than cash, to satisfy the exercise price.
A new share option granted when a share is used to satisfy the exercise price of a previous share option.
A vesting condition that requires the counterparty to complete a specified period of service during which services are provided to the entity. If the counterparty, regardless of the reason, ceases to provide service during the vesting period, it has failed to satisfy the condition. A service condition does not require a performance target to be met.
An agreement between the entity (or another group7 entity or any shareholder of any group entity) and another party (including an employee) that entitles the other party to receive
(a) | cash or other assets of the entity for amounts that are based on the price (or value) of equity instruments (including shares or share options) of the entity or another group entity, or |
(b) | equity instruments (including shares or share options) of the entity or another group entity, |
provided the specified vesting conditions, if any, are met.
A transaction in which the entity
(a) | receives goods or services from the supplier of those goods or services (including an employee) in a share‑based payment arrangement, or |
(b) | incurs an obligation to settle the transaction with the supplier in a share‑based payment arrangement when another group entity receives those goods or services.E10 |
| E10 | [IFRIC® Update, May 2006, Agenda Decision, ‘IFRS 2 Share-based Payment—Scope of IFRS 2: Share plans with cash alternatives at the discretion of the entity’ The IFRIC considered whether an employee share plan in which the employer had the choice of settlement in cash or in shares, and the amount of the settlement did not vary with changes in the share price of the entity should be treated as a share‑based payment transaction within the scope of IFRS 2. The IFRIC noted that IFRS 2 defines a share‑based payment transaction as a transaction in which the entity receives goods or services as consideration for equity instruments of the entity or amounts that are based on the price of equity instruments of the entity. The IFRIC further noted that the definition of a share‑based payment transaction does not require the exposure of the entity to be linked to movements in the share price of the entity. Moreover, it is clear that IFRS 2 contemplates share‑based payment transactions in which the terms of the arrangement provide the entity with a choice of settlement, since they are specifically addressed in paragraphs 41–43 of IFRS 2. The IFRIC therefore believed that, although the amount of the settlement did not vary with changes in the share price of the entity, such share plans are share‑based payment transactions in accordance with IFRS 2 since the consideration may be equity instruments of the entity. The IFRIC also believed that, even in the extreme circumstances in which the entity was given a choice of settlement and the value of the shares that would be delivered was a fixed monetary amount, those share plans were still within the scope of IFRS 2. The IFRIC believed that, since the requirements of IFRS 2 were clear, the issue was not expected to create significant divergence in practice. The IFRIC therefore decided not to add the issue to the agenda.] |
A contract that gives the holder the right, but not the obligation, to subscribe to the entity’s shares at a fixed or determinable price for a specified period of time.E11
| E11 | [IFRIC® Update, November 2005, Agenda Decision, ‘IFRS 2 Share-based Payment—Employee share loan plans’ The IFRIC was asked to consider the accounting treatment of employee share loan plans. Under many such plans, employee share purchases are facilitated by means of a loan from the issuer with recourse only to the shares. The IFRIC was asked whether the loan should be considered part of the potential share‑based payment, with the entire arrangement treated as an option, or whether the loan should be accounted for separately as a financial asset. The IFRIC noted that the issue of shares using the proceeds of a loan made by the share issuer, when the loan is recourse only to the shares, would be treated as an option grant in which options were exercised on the date or dates when the loan was repaid. The IFRIC decided it would not expect diversity in practice and would not add this item to its agenda.] |
To become an entitlement. Under a share‑based payment arrangement, a counterparty’s right to receive cash, other assets or equity instruments of the entity vests when the counterparty’s entitlement is no longer conditional on the satisfaction of any vesting conditions.
A condition that determines whether the entity receives the services that entitle the counterparty to receive cash, other assets or equity instruments of the entity, under a share‑based payment arrangement. A vesting condition is either a service condition or a performance condition.
The period during which all the specified vesting conditions of a share‑based payment arrangement are to be satisfied.
This appendix is an integral part of the IFRS.
B1 | Paragraphs B2–B41 of this appendix discuss measurement of the fair value of shares and share options granted, focusing on the specific terms and conditions that are common features of a grant of shares or share options to employees. Therefore, it is not exhaustive. Furthermore, because the valuation issues discussed below focus on shares and share options granted to employees, it is assumed that the fair value of the shares or share options is measured at grant date. However, many of the valuation issues discussed below (eg determining expected volatility) also apply in the context of estimating the fair value of shares or share options granted to parties other than employees at the date the entity obtains the goods or the counterparty renders service. |
B2 | For shares granted to employees, the fair value of the shares shall be measured at the market price of the entity’s shares (or an estimated market price, if the entity’s shares are not publicly traded), adjusted to take into account the terms and conditions upon which the shares were granted (except for vesting conditions that are excluded from the measurement of fair value in accordance with paragraphs 19–21). |
B3 | For example, if the employee is not entitled to receive dividends during the vesting period, this factor shall be taken into account when estimating the fair value of the shares granted. Similarly, if the shares are subject to restrictions on transfer after vesting date, that factor shall be taken into account, but only to the extent that the post‑vesting restrictions affect the price that a knowledgeable, willing market participant would pay for that share. For example, if the shares are actively traded in a deep and liquid market, post‑vesting transfer restrictions may have little, if any, effect on the price that a knowledgeable, willing market participant would pay for those shares. [Refer:IG example 11] Restrictions on transfer or other restrictions that exist during the vesting period shall not be taken into account when estimating the grant date fair value of the shares granted, because those restrictions stem from the existence of vesting conditions, which are accounted for in accordance with paragraphs 19–21. |
B4 | For share options granted to employees, in many cases market prices are not available, because the options granted are subject to terms and conditions that do not apply to traded options. If traded options with similar terms and conditions do not exist, the fair value of the options granted shall be estimated by applying an option pricing model. |
B5 | The entity shall consider factors that knowledgeable, willing market participants would consider in selecting the option pricing model to apply. For example, many employee options have long lives, are usually exercisable during the period between vesting date and the end of the options’ life, and are often exercised early. These factors should be considered when estimating the grant date fair value of the options. For many entities, this might preclude the use of the Black‑Scholes‑Merton formula, which does not allow for the possibility of exercise before the end of the option’s life and may not adequately reflect the effects of expected early exercise. It also does not allow for the possibility that expected volatility and other model inputs [Refer:paragraphs B11–B15] might vary over the option’s life. However, for share options with relatively short contractual lives, or that must be exercised within a short period of time after vesting date, the factors identified above may not apply. In these instances, the Black‑Scholes‑Merton formula may produce a value that is substantially the same as a more flexible option pricing model. |
B6 | All option pricing models take into account, as a minimum, the following factors:
|
B7 | Other factors that knowledgeable, willing market participants would consider in setting the price shall also be taken into account (except for vesting conditions and reload features that are excluded from the measurement of fair value in accordance with paragraphs 19–22). |
B8 | For example, a share option granted to an employee typically cannot be exercised during specified periods (eg during the vesting period or during periods specified by securities regulators). This factor shall be taken into account if the option pricing model applied would otherwise assume that the option could be exercised at any time during its life. However, if an entity uses an option pricing model that values options that can be exercised only at the end of the options’ life, no adjustment is required for the inability to exercise them during the vesting period (or other periods during the options’ life), because the model assumes that the options cannot be exercised during those periods. |
B9 | Similarly, another factor common to employee share options is the possibility of early exercise of the option, for example, because the option is not freely transferable, or because the employee must exercise all vested options upon cessation of employment. The effects of expected early exercise shall be taken into account, as discussed in paragraphs B16–B21. |
B10 | Factors that a knowledgeable, willing market participant would not consider in setting the price of a share option (or other equity instrument) shall not be taken into account when estimating the fair value of share options (or other equity instruments) granted. For example, for share options granted to employees, factors that affect the value of the option from the individual employee’s perspective only are not relevant to estimating the price that would be set by a knowledgeable, willing market participant. |
B11 | In estimating the expected volatility of and dividends on the underlying shares, the objective is to approximate the expectations that would be reflected in a current market or negotiated exchange price for the option. Similarly, when estimating the effects of early exercise of employee share options, the objective is to approximate the expectations that an outside party with access to detailed information about employees’ exercise behaviour would develop based on information available at the grant date. |
B12 | Often, there is likely to be a range of reasonable expectations about future volatility, dividends and exercise behaviour. If so, an expected value should be calculated, by weighting each amount within the range by its associated probability of occurrence. |
B13 | Expectations about the future are generally based on experience, modified if the future is reasonably expected to differ from the past. In some circumstances, identifiable factors may indicate that unadjusted historical experience is a relatively poor predictor of future experience. For example, if an entity with two distinctly different lines of business disposes of the one that was significantly less risky than the other, historical volatility may not be the best information on which to base reasonable expectations for the future. |
B14 | In other circumstances, historical information may not be available. For example, a newly listed entity will have little, if any, historical data on the volatility of its share price. Unlisted and newly listed entities are discussed further below. |
B15 | In summary, an entity should not simply base estimates of volatility, exercise behaviour and dividends on historical information without considering the extent to which the past experience is expected to be reasonably predictive of future experience. |
B16 | Employees often exercise share options early, for a variety of reasons. For example, employee share options are typically non‑transferable. This often causes employees to exercise their share options early, because that is the only way for the employees to liquidate their position. Also, employees who cease employment are usually required to exercise any vested options within a short period of time, otherwise the share options are forfeited. This factor also causes the early exercise of employee share options. Other factors causing early exercise are risk aversion and lack of wealth diversification. |
B17 | The means by which the effects of expected early exercise are taken into account depends upon the type of option pricing model applied. For example, expected early exercise could be taken into account by using an estimate of the option’s expected life (which, for an employee share option, is the period of time from grant date to the date on which the option is expected to be exercised) as an input into an option pricing model (eg the Black‑Scholes‑Merton formula). Alternatively, expected early exercise could be modelled in a binomial or similar option pricing model that uses contractual life as an input. |
B18 | Factors to consider in estimating early exercise include:
|
B19 | As noted in paragraph B17, the effects of early exercise could be taken into account by using an estimate of the option’s expected life as an input into an option pricing model. When estimating the expected life of share options granted to a group of employees, the entity could base that estimate on an appropriately weighted average expected life for the entire employee group or on appropriately weighted average lives for subgroups of employees within the group, based on more detailed data about employees’ exercise behaviour (discussed further below). |
B20 | Separating an option grant into groups for employees with relatively homogeneous exercise behaviour is likely to be important. Option value is not a linear function of option term; value increases at a decreasing rate as the term lengthens. For example, if all other assumptions are equal, although a two‑year option is worth more than a one‑year option, it is not worth twice as much. That means that calculating estimated option value on the basis of a single weighted average life that includes widely differing individual lives would overstate the total fair value of the share options granted. Separating options granted into several groups, each of which has a relatively narrow range of lives included in its weighted average life, reduces that overstatement. |
B21 | Similar considerations apply when using a binomial or similar model. For example, the experience of an entity that grants options broadly to all levels of employees might indicate that top‑level executives tend to hold their options longer than middle‑management employees hold theirs and that lower‑level employees tend to exercise their options earlier than any other group. In addition, employees who are encouraged or required to hold a minimum amount of their employer’s equity instruments, including options, might on average exercise options later than employees not subject to that provision. In those situations, separating options by groups of recipients with relatively homogeneous exercise behaviour will result in a more accurate estimate of the total fair value of the share options granted. |
B22 | Expected volatility is a measure of the amount by which a price is expected to fluctuate during a period. The measure of volatility used in option pricing models is the annualised standard deviation of the continuously compounded rates of return on the share over a period of time. Volatility is typically expressed in annualised terms that are comparable regardless of the time period used in the calculation, for example, daily, weekly or monthly price observations. |
B23 | The rate of return (which may be positive or negative) on a share for a period measures how much a shareholder has benefited from dividends and appreciation (or depreciation) of the share price. |
B24 | The expected annualised volatility of a share is the range within which the continuously compounded annual rate of return is expected to fall approximately two‑thirds of the time. For example, to say that a share with an expected continuously compounded rate of return of 12 per cent has a volatility of 30 per cent means that the probability that the rate of return on the share for one year will be between –18 per cent (12% – 30%) and 42 per cent (12% + 30%) is approximately two‑thirds. If the share price is CU100 at the beginning of the year and no dividends are paid, the year‑end share price would be expected to be between CU83.53 (CU100 × e–0.18) and CU152.20 (CU100 × e0.42) approximately two‑thirds of the time. |
B25 | Factors to consider in estimating expected volatility include:
|
B26 | As noted in paragraph B25, an entity should consider historical volatility of the share price over the most recent period that is generally commensurate with the expected option term. If a newly listed entity does not have sufficient information on historical volatility, it should nevertheless compute historical volatility for the longest period for which trading activity is available. It could also consider the historical volatility of similar entities following a comparable period in their lives. For example, an entity that has been listed for only one year and grants options with an average expected life of five years might consider the pattern and level of historical volatility of entities in the same industry for the first six years in which the shares of those entities were publicly traded. |
B27 | An unlisted entity will not have historical information to consider when estimating expected volatility. Some factors to consider instead are set out below. |
B28 | In some cases, an unlisted entity that regularly issues options or shares to employees (or other parties) might have set up an internal market for its shares. The volatility of those share prices could be considered when estimating expected volatility. |
B29 | Alternatively, the entity could consider the historical or implied volatility of similar listed entities, for which share price or option price information is available, to use when estimating expected volatility. This would be appropriate if the entity has based the value of its shares on the share prices of similar listed entities. |
B30 | If the entity has not based its estimate of the value of its shares on the share prices of similar listed entities, and has instead used another valuation methodology to value its shares, the entity could derive an estimate of expected volatility consistent with that valuation methodology. For example, the entity might value its shares on a net asset or earnings basis. It could consider the expected volatility of those net asset values or earnings. |
B31 | Whether expected dividends should be taken into account when measuring the fair value of shares or options granted depends on whether the counterparty is entitled to dividends or dividend equivalents. |
B32 | For example, if employees were granted options and are entitled to dividends on the underlying shares or dividend equivalents (which might be paid in cash or applied to reduce the exercise price) between grant date and exercise date, the options granted should be valued as if no dividends will be paid on the underlying shares, ie the input for expected dividends should be zero. |
B33 | Similarly, when the grant date fair value of shares granted to employees is estimated, no adjustment is required for expected dividends if the employee is entitled to receive dividends paid during the vesting period. |
B34 | Conversely, if the employees are not entitled to dividends or dividend equivalents during the vesting period (or before exercise, in the case of an option), the grant date valuation of the rights to shares or options should take expected dividends into account. That is to say, when the fair value of an option grant is estimated, expected dividends should be included in the application of an option pricing model. When the fair value of a share grant is estimated, that valuation should be reduced by the present value of dividends expected to be paid during the vesting period. |
B35 | Option pricing models generally call for expected dividend yield. However, the models may be modified to use an expected dividend amount rather than a yield. An entity may use either its expected yield or its expected payments. If the entity uses the latter, it should consider its historical pattern of increases in dividends. For example, if an entity’s policy has generally been to increase dividends by approximately 3 per cent per year, its estimated option value should not assume a fixed dividend amount throughout the option’s life unless there is evidence that supports that assumption. |
B36 | Generally, the assumption about expected dividends should be based on publicly available information. An entity that does not pay dividends and has no plans to do so should assume an expected dividend yield of zero. However, an emerging entity with no history of paying dividends might expect to begin paying dividends during the expected lives of its employee share options. Those entities could use an average of their past dividend yield (zero) and the mean dividend yield of an appropriately comparable peer group. |
B37 | Typically, the risk‑free interest rate is the implied yield currently available on zero‑coupon government issues of the country in whose currency the exercise price is expressed, with a remaining term equal to the expected term of the option being valued (based on the option’s remaining contractual life and taking into account the effects of expected early exercise). It may be necessary to use an appropriate substitute, if no such government issues exist or circumstances indicate that the implied yield on zero‑coupon government issues is not representative of the risk‑free interest rate (for example, in high inflation economies). Also, an appropriate substitute should be used if market participants would typically determine the risk‑free interest rate by using that substitute, rather than the implied yield of zero‑coupon government issues, when estimating the fair value of an option with a life equal to the expected term of the option being valued. |
| E12 | [IFRIC® Update, November 2006, Agenda Decision, ‘IFRS 2 Share-based Payment—Incremental fair value to employees as a result of unexpected capital restructurings’ The IFRIC was asked to consider a situation in which the fair value of the equity instruments granted to the employees of an entity increased after the sponsoring entity undertook a capital restructuring that was not anticipated at the date of grant of the equity instruments. The original share‑based payment plan contained neither specific nor more general requirements for adjustments to the grant in the event of a capital restructuring. As a result, the equity instruments previously granted to the employees became more valuable as a consequence of the restructuring. The issue was whether the incremental value should be accounted for in the same way as a modification to the terms and conditions of the plan in accordance with IFRS 2. The IFRIC believed that the specific case presented was not a normal commercial occurrence and was unlikely to have widespread significance. The IFRIC therefore decided not to add the issue to its agenda.] |
B38 | Typically, third parties, not the entity, write traded share options. When these share options are exercised, the writer delivers shares to the option holder. Those shares are acquired from existing shareholders. Hence the exercise of traded share options has no dilutive effect. |
B39 | In contrast, if share options are written by the entity, new shares are issued when those share options are exercised (either actually issued or issued in substance, if shares previously repurchased and held in treasury are used). Given that the shares will be issued at the exercise price rather than the current market price at the date of exercise, this actual or potential dilution might reduce the share price, so that the option holder does not make as large a gain on exercise as on exercising an otherwise similar traded option that does not dilute the share price. |
B40 | Whether this has a significant effect on the value of the share options granted depends on various factors, such as the number of new shares that will be issued on exercise of the options compared with the number of shares already issued. Also, if the market already expects that the option grant will take place, the market may have already factored the potential dilution into the share price at the date of grant. |
B41 | However, the entity should consider whether the possible dilutive effect of the future exercise of the share options granted might have an impact on their estimated fair value at grant date. Option pricing models can be adapted to take into account this potential dilutive effect. |
B42 | Paragraph 27 requires that, irrespective of any modifications to the terms and conditions on which the equity instruments were granted, or a cancellation or settlement of that grant of equity instruments, the entity should recognise, as a minimum, the services received measured at the grant date fair value of the equity instruments granted, unless those equity instruments do not vest because of failure to satisfy a vesting condition (other than a market condition) that was specified at grant date. In addition, the entity should recognise the effects of modifications that increase the total fair value of the share‑based payment arrangement or are otherwise beneficial to the employee. |
B43 | To apply the requirements of paragraph 27:
|
B44 | Furthermore, if the entity modifies the terms or conditions of the equity instruments granted in a manner that reduces the total fair value of the share‑based payment arrangement, or is not otherwise beneficial to the employee, the entity shall nevertheless continue to account for the services received as consideration for the equity instruments granted as if that modification had not occurred (other than a cancellation of some or all the equity instruments granted, which shall be accounted for in accordance with paragraph 28). For example:
|
B44A | If the terms and conditions of a cash-settled share-based payment transaction are modified with the result that it becomes an equity-settled share-based payment transaction, the transaction is accounted for as such from the date of the modification. Specifically:
|
B44B | If, as a result of the modification, the vesting period is extended or shortened, the application of the requirements in paragraph B44A reflect the modified vesting period. The requirements in paragraph B44A apply even if the modification occurs after the vesting period. |
B44C | A cash-settled share-based payment transaction may be cancelled or settled (other than a transaction cancelled by forfeiture when the vesting conditions are not satisfied). If equity instruments are granted and, on that grant date, the entity identifies them as a replacement for the cancelled cash-settled share-based payment, the entity shall apply paragraphs B44A and B44B. |
B45 | Paragraphs 43A–43C address the accounting for share‑based payment transactions among group entities in each entity’s separate or individual financial statements. Paragraphs B46–B61 discuss how to apply the requirements in paragraphs 43A–43C. As noted in paragraph 43D, share‑based payment transactions among group entities may take place for a variety of reasons depending on facts and circumstances. Therefore, this discussion is not exhaustive and assumes that when the entity receiving the goods or services has no obligation to settle the transaction, the transaction is a parent’s equity contribution to the subsidiary, regardless of any intragroup repayment arrangements. |
B46 | Although the discussion below focuses on transactions with employees, it also applies to similar share‑based payment transactions with suppliers of goods or services other than employees. An arrangement between a parent and its subsidiary may require the subsidiary to pay the parent for the provision of the equity instruments to the employees. The discussion below does not address how to account for such an intragroup payment arrangement. |
B47 | Four issues are commonly encountered in share‑based payment transactions among group entities. For convenience, the examples below discuss the issues in terms of a parent and its subsidiary. |
B48 | The first issue is whether the following transactions involving an entity’s own equity instruments should be accounted for as equity‑settled or as cash‑settled in accordance with the requirements of this IFRS:
|
B49 | The entity shall account for share‑based payment transactions in which it receives services as consideration for its own equity instruments as equity‑settled. This applies regardless of whether the entity chooses or is required to buy those equity instruments from another party to satisfy its obligations to its employees under the share‑based payment arrangement. It also applies regardless of whether:
|
B50 | If the shareholder has an obligation to settle the transaction with its investee’s employees, it provides equity instruments of its investee rather than its own. Therefore, if its investee is in the same group as the shareholder, in accordance with paragraph 43C, the shareholder shall measure its obligation in accordance with the requirements applicable to cash‑settled share‑based payment transactions in the shareholder’s separate financial statements and those applicable to equity‑settled share‑based payment transactions in the shareholder’s consolidated financial statements. |
B51 | The second issue concerns share‑based payment transactions between two or more entities within the same group involving an equity instrument of another group entity. For example, employees of a subsidiary are granted rights to equity instruments of its parent as consideration for the services provided to the subsidiary. |
B52 | Therefore, the second issue concerns the following share‑based payment arrangements:
|
B53 | The subsidiary does not have an obligation to provide its parent’s equity instruments to the subsidiary’s employees. Therefore, in accordance with paragraph 43B, the subsidiary shall measure the services received from its employees in accordance with the requirements applicable to equity‑settled share‑based payment transactions, and recognise a corresponding increase in equity as a contribution from the parent. |
B54 | The parent has an obligation to settle the transaction with the subsidiary’s employees by providing the parent’s own equity instruments. Therefore, in accordance with paragraph 43C, the parent shall measure its obligation in accordance with the requirements applicable to equity‑settled share‑based payment transactions. |
B55 | Because the subsidiary does not meet either of the conditions in paragraph 43B, it shall account for the transaction with its employees as cash‑settled. This requirement applies irrespective of how the subsidiary obtains the equity instruments to satisfy its obligations to its employees. |
B56 | The third issue is how an entity that receives goods or services from its suppliers (including employees) should account for share‑based arrangements that are cash‑settled when the entity itself does not have any obligation to make the required payments to its suppliers. For example, consider the following arrangements in which the parent (not the entity itself) has an obligation to make the required cash payments to the employees of the entity:
|
B57 | The subsidiary does not have an obligation to settle the transaction with its employees. Therefore, the subsidiary shall account for the transaction with its employees as equity‑settled, [Refer:paragraph 43B] and recognise a corresponding increase in equity as a contribution from its parent. The subsidiary shall remeasure the cost of the transaction subsequently for any changes resulting from non‑market vesting conditions not being met in accordance with paragraphs 19–21. This differs from the measurement of the transaction as cash‑settled in the consolidated financial statements of the group. |
B58 | Because the parent has an obligation to settle the transaction with the employees, and the consideration is cash, the parent (and the consolidated group) shall measure its obligation in accordance with the requirements applicable to cash‑settled share‑based payment transactions in paragraph 43C. |
B59 | The fourth issue relates to group share‑based payment arrangements that involve employees of more than one group entity. For example, a parent might grant rights to its equity instruments to the employees of its subsidiaries, conditional upon the completion of continuing service with the group for a specified period. An employee of one subsidiary might transfer employment to another subsidiary during the specified vesting period without the employee’s rights to equity instruments of the parent under the original share‑based payment arrangement being affected. If the subsidiaries have no obligation to settle the share‑based payment transaction with their employees, they account for it as an equity‑settled transaction. [Refer:paragraph 43B] Each subsidiary shall measure the services received from the employee by reference to the fair value of the equity instruments at the date the rights to those equity instruments were originally granted by the parent as defined in Appendix A, and the proportion of the vesting period the employee served with each subsidiary. |
B60 | If the subsidiary has an obligation to settle the transaction with its employees in its parent’s equity instruments, it accounts for the transaction as cash‑settled. [Refer:paragraph 43B] Each subsidiary shall measure the services received on the basis of grant date fair value of the equity instruments for the proportion of the vesting period the employee served with each subsidiary. In addition, each subsidiary shall recognise any change in the fair value of the equity instruments during the employee’s service period with each subsidiary. |
B61 | Such an employee, after transferring between group entities, may fail to satisfy a vesting condition other than a market condition as defined in Appendix A, eg the employee leaves the group before completing the service period. In this case, because the vesting condition is service to the group, each subsidiary shall adjust the amount previously recognised in respect of the services received from the employee in accordance with the principles in paragraph 19. Hence, if the rights to the equity instruments granted by the parent do not vest because of an employee’s failure to meet a vesting condition other than a market condition, no amount is recognised on a cumulative basis for the services received from that employee in the financial statements of any group entity. |
The amendments in this appendix become effective for annual financial statements covering periods beginning on or after 1 January 2005. If an entity applies this Standard for an earlier period, these amendments become effective for that earlier period.
| * * * * * |
The amendments contained in this appendix when this Standard was issued in 2004 have been incorporated into the relevant Standards published in this volume.
International Financial Reporting Standard 2 Share‑based Payment was approved for issue by the fourteen members of the International Accounting Standards Board.
| Sir David Tweedie | Chairman |
| Thomas E Jones | Vice‑Chairman |
| Mary E Barth | |
| Hans‑Georg Bruns | |
| Anthony T Cope | |
| Robert P Garnett | |
| Gilbert Gélard | |
| James J Leisenring | |
| Warren J McGregor | |
| Patricia L O’Malley | |
| Harry K Schmid | |
| John T Smith | |
| Geoffrey Whittington | |
| Tatsumi Yamada |
Vesting Conditions and Cancellations (Amendments to IFRS 2) was approved for issue by the thirteen members of the International Accounting Standards Board.
| Sir David Tweedie | Chairman |
| Thomas E Jones | Vice‑Chairman |
| Mary E Barth | |
| Stephen Cooper | |
| Philippe Danjou | |
| Jan Engström | |
| Robert P Garnett | |
| Gilbert Gélard | |
| James J Leisenring | |
| Warren J McGregor | |
| John T Smith | |
| Tatsumi Yamada | |
| Wei‑Guo Zhang |
Group Cash‑settled Share‑based Payment Transactions (Amendments to IFRS 2) was approved for issue by thirteen of the fourteen members of the International Accounting Standards Board. Mr Kalavacherla abstained in view of his recent appointment to the Board.
| Sir David Tweedie | Chairman |
| Thomas E Jones | Vice‑Chairman |
| Mary E Barth | |
| Stephen Cooper | |
| Philippe Danjou | |
| Jan Engström | |
| Robert P Garnett | |
| Gilbert Gélard | |
| Prabhakar Kalavacherla | |
| James J Leisenring | |
| Warren J McGregor | |
| John T Smith | |
| Tatsumi Yamada | |
| Wei‑Guo Zhang |
Classification and Measurement of Share-based Payment Transactions was approved for issue by the fourteen members of the International Accounting Standards Board.
| Hans Hoogervorst | Chairman |
| Ian Mackintosh | Vice‑Chairman |
| Stephen Cooper | |
| Philippe Danjou | |
| Martin Edelmann | |
| Patrick Finnegan | |
| Amaro Gomes | |
| Gary Kabureck | |
| Suzanne Lloyd | |
| Takatsugu Ochi | |
| Darrel Scott | |
| Chungwoo Suh | |
| Mary Tokar | |
| Wei-Guo Zhang |
| 2 | This IFRS uses the phrase ‘by reference to’ rather than ‘at’, because the transaction is ultimately measured by multiplying the fair value of the equity instruments granted, measured at the date specified in paragraph 11 or 13 (whichever is applicable), by the number of equity instruments that vest, as explained in paragraph 19. (back) |
| 3 | In the remainder of this IFRS, all references to employees also include others providing similar services. (back) |
| 4 | In paragraphs 35–43, all references to cash also include other assets of the entity. (back) |
| 5 | The Conceptual Framework for Financial Reporting issued in 2018 defines a liability as a present obligation of the entity to transfer an economic resource as a result of past events. (back) |
| 6 | In this appendix, monetary amounts are denominated in ‘currency units (CU)’. (back) |
| 7 | A ‘group’ is defined in Appendix A of IFRS 10 Consolidated Financial Statements as ‘a parent and its subsidiaries’ from the perspective of the reporting entity’s ultimate parent. [Refer:Basis for Conclusions paragraph BC22E] (back) |