International Financial Reporting Standard 2
Share-based Payment

 

In February 2004 the International Accounting Standards Board (IASB) issued IFRS 2 Share-based Payment. The IASB amended IFRS 2 to clarify its scope in January 2008 and to incorporate the guidance contained in two related Interpretations (IFRIC 8 Scope of IFRS 2 and IFRIC 11 IFRS 2—Group and Treasury Share Transactions) in June 2009.

Other IFRSs have made minor consequential amendments to IFRS 2. They include

Improvements to IFRSs (issued April 2009), IFRS 9 Financial Instruments (issued November 2009 and October 2010), IFRS 10 Consolidated Financial Statements (issued May 2011), IFRS 11 Joint Arrangements (issued May 2011), IFRS 13 Fair Value Measurement (issued May 2011), IAS 19 Employee Benefits (issued June 2011) and Annual Improvements to IFRSs 2010-2012 Cycle (issued December 2013).

 

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INTERNATIONAL FINANCIAL REPORTING STANDARD 2

SHARE-BASED PAYMENT

 

OBJECTIVE

SCOPE

RECOGNITION

EQUITY-SETTLED SHARE-BASED PAYMENT TRANSACTIONS

Overview

Transactions in which services are received

Transactions measured by reference to the fair value of the equity

instruments granted

Determining the fair value of equity instruments granted

Treatment of vesting conditions

Treatment of non-vesting conditions

Treatment of a reload feature

After vesting date

If the fair value of the equity instruments cannot be estimated reliably

Modifications to the terms and conditions on which equity instruments were

Modifications to the terms and conditions on which equity instruments were

granted, including cancellations and settlements

CASH-SETTLED SHARE-BASED PAYMENT TRANSACTIONS

SHARE-BASED PAYMENT TRANSACTIONS WITH CASH ALTERNATIVES

Share-based payment transactions in which the terms of the arrangement

provide the counterparty with a choice of settlement

Share-based payment transactions in which the terms of the arrangement

provide the entity with a choice of settlement

SHARE-BASED PAYMENT TRANSACTIONS AMONG GROUP ENTITIES (2009

AMENDMENTS)

DISCLOSURES

TRANSITIONAL PROVISIONS

EFFECTIVE DATE

WITHDRAWAL OF INTERPRETATIONS

APPENDICES

A Defined terms

B Application guidance

C Amendments to other IFRSs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 inthe context of its objective and the Basis for Conclusions, the Preface to International Financial Reporting 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.

Introduction

Reasons for issuing the IFRS

IN1 .Entities often grant shares or share options to employees or other parties. Share plans and share option plans are a common feature of employee remuneration, for directors, senior executives and many other employees. Some entities issue shares or share options to pay suppliers, such as suppliers of professional services.

IN2.Until this IFRS was issued, there was no IFRS covering the recognition and measurement of these transactions. Concerns were raised about this gap in IFRSs, given the increasing prevalence of share-based payment transactions in many countries

Reasons for amending IFRS 2 in June 2009

IN2A.In June 2009 the International Accounting Standards Board amended IFRS 2 to clarify its scope and the accounting for group cash-settled share-based payment transactions in the separate or individual financial statements of the entity receiving the goods or services when that entity has no obligation to settle the share-based payment transaction. The amendments also incorporate the

guidance contained in the following Interpretations

       IFRIC 8 Scope of IFRS 2

        IFRIC 11 IFRS 2—Group and Treasury Share Transactions.

As a result, the Board withdrew IFRIC 8 and IFRIC 11.

Main features of the IFRS

IN3 The IFRS requires an entity to recognise share-based payment transactions in its financial statements, including transactions with employees or other parties to be settled in cash, other assets, or equity instruments of the entity. There are no exceptions to the IFRS, other than for transactions to which other Standards apply.

IN4 .The IFRS sets out measurement principles and specific requirements for three

types of share-based payment transactions

(a)equity-settled share-based payment transactions, in which the entity receives goods or services as consideration for equity instruments of the

entity (including shares or share options);

(b)cash-settled share-based payment transactions, in which the entity acquires goods or services by incurring liabilities to the supplier of

those goods or services for amounts that are based on the price (or value) of the

entity's shares or other equity instruments of the entity; and

(c) transactions in which the entity receives or acquires goods or services

and the terms of the arrangement provide either the entity or the supplier of those goods or services with a choice of whether the entity settles the transaction in cash or by issuing equity instruments

IN5.For equity-settled share-based payment transactions, the IFRS requires an entity to measure the goods or services received, and the corresponding increase in equity, directly, at the fair value 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 is required to measure their value, and the corresponding increase in equity, indirectly, by reference to the

fair value of the equity instruments granted. Furthermor

(a)for transactions with employees and others providing similar services, the entity is required to measure the fair value of the equity instruments granted, because it is typically not possible to estimate reliably the fair value of employee services received. The fair value of the equity instruments granted is measured at grant date.

for transactions with parties other than employees (and those providing

similar services), there is a rebuttable presumption that the fair value of the goods or services received can be estimated reliably. That fair value is measured at the date the entity obtains the goods or the counterparty renders service. In rare cases, if the presumption is rebutted, the transaction is measured by reference to the fair value of the equity instruments granted, measured at the date the entity obtains the goods or the counterparty renders service.b)for goods or services measured by reference to the fair value of the equity instruments granted, the IFRS specifies that all non-vesting conditions are taken into account in the estimate of the fair value of the equityc)instruments.       However, vesting conditions that are not marketconditions are not taken into account when estimating the fair value of the shares or options at the relevant measurement date (as specified above). Instead, vesting conditions are 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 is 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).

(d)the IFRS requires the fair value of equity instruments granted to be based on market prices, if available, and to take into account the terms and conditions upon which those equity instruments were granted. In the absence of market prices, fair value is estimated, 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

(e)the IFRS also sets out requirements if the terms and conditions of an option or share grant are modified (eg an option is repriced) or if a grant is cancelled, repurchased or replaced with another grant of equity instruments. For example, irrespective of any modification, cancellation or settlement of a grant of equity instruments to employees, the IFRS generally requires the entity to recognise, as a minimum, the services received measured at the grant date fair value of the equity instruments granted.

IN6.For cash-settled share-based payment transactions, the IFRS requires an entity to measure the goods or services acquired and the liability incurred at the fair value of the liability. Until the liability is settled, the entity is required to remeasure the fair value of the liability at the end of each reporting period and at the date of settlement, with any changes in value recognised in profit or loss for the period.

IN7.For share-based payment transactions in which the terms of the arrangement provide either the entity or the supplier of goods or services with a choice of whether the entity settles the transaction in cash or by issuing equity instruments, the entity is required to account for that transaction, or the components of that transaction, as a cash-settled share-based payment transaction 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 if, and to the extent that, no such liability has been incurred.

IN8.The IFRS prescribes various disclosure requirements to enable users of financial

statements to understand:

(a)the nature and extent of share-based payment arrangements that existed

during the period;

(b)how the fair value of the goods or services received, or the fair value of the equity instruments granted, during the period was determined; and

the effect of share-based payment transactions on the entity's profit or

loss for the period and on its financial position

International Financial Reporting Standard 2

Share-based Payment

Objective
     1The 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 enti

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

2An 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, includin

equity-settled share-based payment transactions,

cash-settled share-based payment transactions, and

transactions in which the entity receives or acquires goods or services

and the terms of the arrangement provide either the entity or the supplier of those goods or services with a choice of whether the entity settles the transaction in cash (or other assets) or by issuing equiinstruments,

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 app

    3A share-based payment transaction may be settled by another group entity (or ashareholder of any group entity) on behalf of the entity receiving or acquiring

the goods or services. Paragraph 2 also applies to an entity that

receives goods or services when another entity in the same group (or shareholder of any group entity) has the obligation to settle the

share-based payment transaction, orhas an obligation to settle a share-based payment transaction when

another entity in the same group receives the goods or servicesunless the transaction is clear

4for a purpose other than payment for goods or services supplied to the entity receiving them.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 ofequity instruments of that particular class, the granting or exercise of that right is not subject to the requirements of this IFR

6  5As 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. 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), 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. 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 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).

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

6Financial Instruments: Presentation (as revised in 2003)1 or paragraphs 5-7 of IAS 39 Financial Instruments: Recognition and Measurement (as revised in 2003).6

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

 

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