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IFRS 2 Share-Based Payments

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IFRS 2 Share-Based Payments 1 | IFRS 2 Share-Based Payments IFRS 2 SHARE-BASED PAYMENTS FACT SHEET 2 | IFRS 2 Share-Based Payments This fact sheet is based on existing requirements as at 31 December 2015 and does not take into account recent standards and interpretations that have been issued but are not yet effective. IMPORTANT NOTE This fact sheet is based on the requirements of the International Financial Reporting Standards (IFRSs). In some jurisdictions, the IFRSs are adopted in their entirety; in other jurisdictions the individual IFRSs are amended. In some jurisdictions the requirements of a particular IFRS may not have been adopted. Consequently, users of the fact sheet in various jurisdictions should ascertain for themselves the relevance of the fact sheet to their particular jurisdiction. The application date included below is the effective date of the initial version of the standard. 3 | IFRS 2 Share-Based Payments IASB APPLICATION DATE (NON-JURISDICTION SPECIFIC) IFRS 2 is applicable for annual reporting periods commencing on or after 1 January 2005. OBJECTIVE IFRS 2 specifies the financial reporting by an entity when it undertakes a share-based payment transaction. The entity is required 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. SCOPE IFRS 2 applies to all share-based payment transactions, whether or not the entity can identify specifically some or all of the goods or services, except if the entity: • Acquir es goods as part of the net assets acquired in a business combination to which IFRS 3 Business Combinations, 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 11Joint Arrangements applies. However, equity instruments granted to employees of the acquiree in their capacity as employees (e.g. return for service) are within the standard’s scope. • Receives or acquires goods or services under a contract within the scope of paragraphs 8-10 of IAS 32 Financial Instruments: Presentation or paragraphs 5 – 7 of IAS 39 Financial Instruments: Recognition and Measurement. • Transactions with an employee (or other party) in his/her capacity as a holder of equity instruments of the entity. 4 | IFRS 2 Share-Based Payments RECOGNITION AND MEASUREMENT IFRS 2 stipulates that an entity shall recognise the goods and services received or acquired in a share-based payment transaction when the entity obtains the goods or receives the services. The accounting entry depends on the type of share-based payment. The table below summarises the classification and measurement principles applicable to different share-based payments. Recognition and Measurement of Share-based Payments Settlement type Recognised as Measurement Equity-settled Equity Fair value of the goods or services received, unless the fair value cannot be estimated reliably. If the entity cannot estimate reliably the fair value of the goods or services received, the transaction is measured indirectly by reference to the fair value of the equity instruments granted. However, IFRS 2 acknowledges it is typically not possible to estimate reliably the fair value of services received. Consequently, the entity shall measure the fair value of the services received by reference to the fair value of the equity instruments granted. The fair value of the equity instruments shall be measured at grant date. Cash-settled Liability Fair value of the liability incurred for the goods or services acquired. Where services are received over various reporting periods, the transaction is recognised as the employee renders service. At each reporting date and the settlement date, the fair value of the liability must be remeasured with any changes in fair value recognised in profit or loss for the period. Counterparty has a choice of Liability and equity. As the For transactions with non-employees where the fair settlement by cash or equity counterparty has a right to value of goods or services received is measured directly, demand a cash or equity the equity component is the difference between the settlement, the instrument fair value of the goods or services received and the granted is a compound financial fair value of the debt component at the date the instrument with a liability and goods or services are received. equity component being For other transactions, including those with employees, recognised. the entity shall measure the fair value of both the debt and equity components with consideration of the terms and conditions on which the rights to cash or equity instruments were granted. To determine the value of both components, the entity shall first measure the fair value of the debt component and then the equity component. Subsequent measurement of the equity and liability components are in accordance with the equity-settled and cash-settled requirements. At settlement date, if equity-settled the liability is transferred direct to equity as consideration. If cash-settled, the payment shall be applied in full to settle the liability with any previously recognised equity component remaining in equity. Entity has a choice of settlement Liability, if the entity determines If no present obligation exists to settle in cash and if by cash or equity that it has a present obligation the entity elects to settle in cash the cash payment is to settle in cash, otherwise the deducted from equity. If the entity elects to settle with transaction is accounted for as equity, the only transaction is a transfer from one equity an equity-settled transaction. component to another. The exception to this is that if the entity elects the settlement alternative with the higher fair value as at settlement date, the entity shall recognise an additional expense for the excess value given, being the difference between the cash paid and the fair value of equity instruments that would otherwise have been issued or the difference between the fair value of the equity instruments issued and the amount of cash that would otherwise have been paid, whichever is applicable. 5 | IFRS 2 Share-Based Payments Indirect measurement of equity-settled share based Reload features payment transactions For options with a reload feature, the reload feature shall Transactions with parties other than employees not be taken into account when estimating the fair value of options granted at the measurement date. A reload There is a rebuttable presumption that the fair value of option shall be accounted for as a new option grant, goods or services received can be estimated reliably at if and when a reload option is subsequently granted. the date the entity obtains the goods or the counterparty renders the service. In the rare case that the presumption After vesting date is rebutted, the goods or services received shall be IFRS 2 prohibits any subsequent adjustment to total measured by reference to the fair value of the equity equity after vesting date irrespective of events such as instruments granted with the measurement date being the forfeiture or non-exercise of the options. However, the date the entity obtains the goods or the counterparty transfers within equity (e.g. one component to another) renders the service. can be made after vesting date. Transactions with employees Modifications The fair value of the employee services received is The entity shall recognise, at a minimum, the services measured as the fair value of the equity instruments received measured at the grant date fair value of granted with the measurement date being the grant date. the equity instruments granted, unless those equity Measurement of the fair value of equity instruments instruments do not vest because of a failure to satisfy granted a vesting condition (other than a market condition) that was specified at grant date. The fair value of equity instruments granted is determined at measurement date based on market prices, if available, This applies irrespective of any modifications to the taking into account the terms and conditions upon which terms and conditions on which the equity instruments the equity instruments were granted. In the absence were granted, or a cancellation or settlement of that of market prices, the fair value is determined using a grant of equity instruments. valuation technique consistent with generally accepted In addition, the entity recognises the effects of modifications valuation methodologies for pricing financial instruments. that increase the total fair value of the share-based The model (e.g. Black-Scholes-Merton formula, binomial payment arrangements or are otherwise beneficial model) must incorporate all factors and assumptions to the employee. that knowledgeable, willing market participants would consider in setting the price. Share-based payment transactions among group entities Vesting conditions For share-based payment transactions among group Vesting conditions, other than market conditions, attached entities, in its separate or individual financial statements, to equity instruments granted are not taken into account the entity receiving the goods or services shall measure when estimating the fair value at measurement date. the goods or services received as either an equity-settled Instead, the number of equity instruments included in the or cash-settled share-based payment transaction by measurement shall be adjusted to reflect the number of assessing: equity instruments expected to vest. This is revised based on subsequent information. Accordingly, on a cumulative • the nature of the awards granted basis, no amount is recognised for goods and services • its own rights and obligations received if vesting conditions are not satisfied. Market vesting conditions (e.g. target share price upon which The amount recognised by the entity receiving the goods vesting is conditioned) shall be taken into account when or services may differ from the amount recognised by estimating the fair value of the equity instruments granted the consolidated group or by another group settling and there are no subsequent adjustments.
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