International Financial Reporting Standards

Accounting for
share-based payments,.

The views expressed in this presentation are those of the

presenter,
not necessarily those of the IASB or IFRS Foundation.
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International Financial Reporting Standards

IFRS 2
Share-based Payment

K
The views expressed in this presentation are those of the
presenter,
not necessarily those of the IASB or IFRS Foundation
© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Introduction 3

• Relevant and faithfully represented financial

information about an entity’s share-based
payment transactions is useful to existing and
potential investors, lenders and other creditors
in making decisions about providing resources
to the entity.

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Scope 4

• IFRS 2 applies to transactions in which (IFRS 2.2):

• shares or other equity instruments are issued in return
for goods or services (eg employee share options)
• the payment amount is based on the price of the entity’s
shares (eg share appreciation rights).
• The scope is broader than employee share options
• Exceptions—IFRS 2 does not apply to (IFRS 2.3A–6):
• IFRS 3 applies to shares or other equity instruments
issued as consideration in a business combination
• Assets contributed at the formation of a joint venture as
defined in IFRS 11
• Goods or services acquired under a contract within the
scope of IAS 32 or IAS 39.

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Recognition 5

• Principle—a share-based payment transaction is

recognised when the entity obtains the goods or
services.
• Goods or services received are recognised as
assets or expenses as appropriate.
• The transaction is recognised in equity (if equity-
settled) or as a liability (if cash-settled).

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Measurement—equity-settled 6

• Principle—measured at the fair value at

measurement date of the goods or services
received.
• If the FV of the goods or services cannot be
estimated reliably, the fair value of the equity
instruments at grant date is used—only if this is
undeterminable, use of the intrinsic value
measurement method is permitted.
• For arrangements with employees must
measure FV of services with reference to the
FV of the instruments granted.
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Measurement—equity-settled 7

• Non-market vesting conditions—eg service

conditions are not taken into account in
measuring fair value at measurement date.
• Market vesting conditions—eg achieving a
specified share price are taken into account in
measuring fair value at measurement date.

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Measurement—equity-settled 8

Example 1 – non-market vesting condition

Entity grants 1 share to each of its 10 staff.
Vesting period = 2 yrs continuous service.
1 staff is expected to leave before vesting.
Grant date fair value = CU10 per share.
Year 1
Dr Expense CU45
Cr Equity CU45
Calculation: 9 staff x CU10 x 1 ÷ 2 years = CU45

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Measurement—equity-settled 9

Example 1 continued
Year 2
3 employees left in the vesting period.
Dr Expense CU25
Cr Equity CU25

Calculation: 7 staff x CU10 = 70 total expense

CU70 less 45 recognised in year 1 = CU25

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IFRS IFRS Foundation.
Foundation 30 Cannon
| 30 Cannon StreetStreet | London
| London EC4MEC4M
6XH 6XH
| UK.| UK. www.ifrs.org
www.ifrs.org
Measurement—equity-settled 10

Example 2 – market vesting conditions

Entity grants 1 share option to each of its
10 staff.
Vesting period = 2 yrs continuous service.
Condition = share price increase from CU5
1/1/20X1 to CU6 at 31/12/20X2.
At 1/1/20X1 fair value (measured taking into
account the market condition) = CU2 per
option.

© 2011
IFRS IFRS Foundation.
Foundation 30 Cannon
| 30 Cannon StreetStreet | London
| London EC4MEC4M
6XH 6XH
| UK.| UK. www.ifrs.org
www.ifrs.org
Measurement—equity-settled 11

Example 2 – continued
Year 1
Dr Expense CU10
Cr Equity CU10
Calculation: 10 staff x CU2 x 1 ÷ 2 years = CU10
Year 2
Dr Expense CU10
Cr Equity CU10
Calculation (irrespective of outcome of market
condition): 10 staff x CU2 x 2 ÷ 2 years = CU20.
CU20 less CU10 recognised in 20X1 = CU10
© 2011
IFRS IFRS Foundation.
Foundation 30 Cannon
| 30 Cannon StreetStreet | London
| London EC4MEC4M
6XH 6XH
| UK.| UK. www.ifrs.org
www.ifrs.org
Measurement—equity-settled 12

Modifications to terms and conditions

• includes the repricing of options granted (IG Ex 7 to
IFRS 2—see Part B of A Guide through IFRS) and
modification of vesting conditions (IG Ex 8 to IFRS
2—see Part B of A Guide through IFRS)
• Modifications involve a minimum expense equal to
that based on services rendered and the grant date
FV and, in addition, any increased expense (from
modification date) should a modification lead to an
increased FV or lead to increased benefit to an
employee.
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Measurement—cash-settled 13

• Principle—measure at the fair value of the

liability at the end of each reporting period (ie
remeasure) and at settlement date.
• Changes in fair value are recognised in profit or
loss.

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Measurement—cash-settled 14

Example 3
On 31/12/20X1 entity granted 10 cash-settled
share appreciation rights (SAR) to each of its
10 staff conditional upon the staff remaining in
service for the next 2 yrs.
Fair value of SAR: 31/12/20X1 = CU5 and
31/12/20X2 = CU6. On 31/12/20X3 entity
paid CU800 to redeem the 100 vested SARs.
One staff member was expected to leave in
20X2.
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Measurement—cash-settled 15

Example 3 continued
31/12/20X1
Dr Expense CU0
Cr Liability CU0
Calculation: 10 SAR x CU5 x 9 staff x 0 ÷ 2 years
31/12/20X2
Dr Expense CU300
Cr Liability CU300
Calculation: 10 SAR x CU6 x 10 staff x 1 ÷ 2
years
© 2011
IFRS IFRS Foundation.
Foundation 30 Cannon
| 30 Cannon StreetStreet | London
| London EC4MEC4M
6XH 6XH
| UK.| UK. www.ifrs.org
www.ifrs.org
Measurement—cash-settled 16

Example 3 continued
31/12/20X3
Dr Expense CU500
Dr Liability CU300
Cr Cash CU800

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Measurement—cash alternatives 17

• If counterparty has the option = compound

financial instrument, therefore split accounting
(ie determine liability component and the
residual of total fair value is equity).
• If counterparty is third party, FV of total
instrument = FV of goods or services received
• If counterparty is employee, FV of total
instrument = FV of equity instruments granted
• If the entity has the option = a liability is
recognised only to the extent that the entity has
an established practice of selling in cash.

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Group entities 18

• Separate or individual financial statements

– Recipient of goods or services: recognise a SBP
transaction
• Determining whether the transaction is recognised
as equity-settled or cash-settled in the group
financial statements is based on whether equity
must be issued in settlement an obligation to settle
in cash exists (IFRS 2.43C).

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Disclosures 19

• Information that enables users to understand

the nature and extent of share-based payment
arrangements.
• Information that enables users to understand
how fair value of the goods or services received
was determined.
• Information that enables users to understand
the effect of share-based payment transactions
on profit or loss and financial position.

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Comparison to the IFRS for SMEs 20

• Differences between Section 26 Share-based

Payment and IFRS 2 include:
– less application guidance is provided in the IFRS for
SMEs.
– when the fair value is not determined using
observable data, IFRS 2 allows use of the intrinsic
valuation method—this is not permitted in
Section 26.

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Judgements and estimates 21

• Identifying share-based payment transactions

may not always be straightforward.
• Distinguishing equity-settled and cash-settled
plans.
• Understanding of plan terms.
• Estimating the fair value of an options and use
of valuation models (Black-Scholes, binomial,
Monte Carlo).
• Estimating vesting periods and vesting
conditions.
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