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“the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date”. Definition of Fair value An exit price Market based view A current price Not a liquidation price or forced sale A number of concepts are embodied in the definition.
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- 2. Scope of IFRS 2
- Recognition (credit entry)
- Equity-settled awards
- 4.1 Measurement principle
- 4.2 Determination of grant date
- How we see it
- 4.3 Vesting conditions
- Diagram 3: Vesting vs non-vesting conditions
- 4.5 Impact of conditions on measuring share-based payments
- 4.6 Vesting period
- 4.7 Valuation of awards
- Diagram 4: Impact of an increase in an input into a valuation model
- 6. Modifications, cancellations and settlements
- How we see it
- 7. Share-based payment awards with a cash alternative
- 8. Exchanges of share-based payment awards issued in a business combination
- How we see it
- 9. Group share-based payment plans
- 11. Disclosures
- 13. Concluding remarks
- How we see it
- Appendix: IFRS 2 Glossary
IFRS 2 encompasses three types of transactions: Equity-settled share-based payment transactions in which the entity receives goods or services as consideration for its own equity instruments or those of another entity in the same group or a shareholder of any group entity Cash-settled share-based payment transactions, also referred to as ‘liability...
Goods When obtained Services When received Expense Asset (if goods/services qualify as asset) Increase in equity (for equity-settled SBP) Liability (for cash-settled SBP) Once the awards have vested, no further accounting adjustments are made to the cost of the award, except in respect of certain modifications to the award. All of the items above a...
made to employees are measured at the grant date fair value.
For equity-settled awards (such as share options), the general principle in IFRS 2 is that an entity measures the fair value of goods obtained or services received, and recognises a corresponding increase in equity. But, if an entity cannot reliably estimate the fair value of the goods obtained or services received, it must measure their value indi...
The determination of the grant date is critical to the measurement of equity-settled share-based payment transactions with employees, since the grant date is the date at which the entity measures such transactions. The grant date is defined as the date on which the reporting entity and the employee have a shared understanding of the terms of the ar...
The determination of whether there is a shared understanding may require the exercise of significant judgement. This may be the case, for example, when: the formula for determining the number of awards to employees is not clearly defined; final substantive approvals are required; or the number of shares ultimately received will not be known until t...
Under IFRS 2, the point at which a cost is recognised for goods or services depends on the vesting conditions. A vesting condition determines whether an entity receives the services that entitle the counterparty to receive the share-based payment award. A share-based payment award generally vests upon meeting specified conditions. Vesting condition...
Does the condition specify a period of service to be completed? No Non-vesting condition Yes Does the condition specify both a period of service and a performance condition? No Yes Service condition No Is the specified period of service the same or as long as the period to satisfy the performance period? Yes Performance condition Does the condition...
Under IFRS 2, the nature of the condition (i.e., vesting or non-vesting, service, performance, market or non-market) affects the timing of when the expense is recognised and, in some cases, the measurement of the expense. In addition, if a condition is not met, whether or not the entity may reverse the previously recognised compensation expense dep...
The vesting period is the period during which all the specified vesting conditions of a share-based payment award must be satisfied, which is not the same as the exercise period or the life of the option. An entity recognises expense over the vesting period, as shown in Illustration 3, or immediately, if there is no vesting period.
Unless an option with the same or comparable terms is listed (which seldom occurs) an entity cannot obtain the fair value externally. Therefore, it must estimate the fair value of a share-based payment using an option-pricing model. IFRS 2 does not require entities to use a specific option-pricing model to calculate fair value. However, it does req...
Exercise price of the option Current share price* Expected life of the option Expected volatility Expected dividend yield Risk-free interest rate FV increase FV decrease a a a a a a * Current share price that is quoted is objectively determinable. However, if it is unquoted (e.g., for unlisted entities), the share price may not be objectively deter...
An entity sometimes modifies or cancels share-based payment awards before they vest because the vesting conditions become too onerous to achieve, or the share price of an equity instrument has dropped so far below the exercise price that it is unlikely it will ever be ‘in the money’ during its life. In such circumstances, an entity may replace the ...
The accounting for non-market performance condition seems to conflict with the requirements of accounting for cancellations, i.e., to recognise the amount that otherwise would have been recognised for services received over the remainder of the vesting period. It is unclear whether the entity’s best estimate at the date of cancellation encompasses ...
IFRS 2 gives specific guidance for the situation in which cash settlement is a choice. The accounting differs depending on whether the choice rests with the counterparty or the entity. If a counterparty chooses settlement of the award in either shares or cash, IFRS 2 treats it as a compound award. A compound award is split into two components: a li...
Acquirers in a business combination often exchange share-based payment awards (i.e., replacement awards) for awards held by employees of the acquired business. These exchanges frequently occur because the acquirer wants to avoid having non-controlling interests in the acquiree, and/or to motivate former employees of the acquiree to contribute to th...
When management is considering replacement of the acquiree’ s share-based payment schemes, careful consideration should be given at the time of negotiating the arrangement to ensure management’s intention is appropriately reflected in the financial statements.
It is common practice for a group to operate a single share scheme covering several subsidiaries. IFRS 2 provides requirements in respect of transactions settled in the equity of either the entity or the parent, as well as cash-settled transactions that are settled by a group entity other than the entity receiving the goods or services. parent migh...
Among other things, IFRS 2 requires entities to disclose the following: The type and scope of agreements existing during the reporting period Descriptions of each type of arrangement, including general terms and conditions of the arrangement (e.g., settlement methods, vesting conditions) The number and weighted-average exercise price of share optio...
IFRS 2 requires significant analysis in terms of classification, measurement and disclosures. It is therefore crucial that those involved in designing plans are familiar with IFRS 2 and the related expense ramifications to avoid unexpected accounting consequences. Decision-makers must also consider ‘hidden’ share-based payment awards that may fall ...
Applying IFRS 2 requires significant analysis in respect of classification and measurement. The accounting implications should be considered at the outset when developing a plan, rather than after the fact. Professional assistance may be useful to assess the appropriate accounting and disclosures.
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For a valuation technique to be consistent with the fair value measurement objective and the other requirements of Topic 718, the staff believes that a consistently applied method to determine the current price of the underlying share should include consideration of whether adjustments to observable market prices (e.g., the closing share price or the share price at another specified time) are ...
Jan 11, 2024 · Definition. A share-based payment transaction in which the entity: receives goods or services as consideration for its own equity instruments, or. receives goods or services but has no obligation to settle the transaction. A share-based payment transaction in which the entity acquires goods or services by incurring a liability to transfer cash ...
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shares or other equity instruments of the entity. The accounting requirements for the share-based payment under ASPE and IFRS depend on how the transaction will be settled, that is, by the issuance of e. ther: equity; cash; or a choice of equity or cash.Both ASPE and IFRS apply to share-based payment transaction for the acquisition of goods and ...
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 ...
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What is a share based payment transaction?
Does a share-based payment transaction have a present obligation to settle in cash?
What is the classification of share-based payment transactions and vesting conditions?
How are share-based payment awards measured in IFRS 2?
When does a share-based payment arrangement vest?
How does a share based payment arrangement become an entitlement?
IFRS 2, Share-based Payment, applies when a company acquires or receives goods and services for equity-based payment. These goods can include inventories, property, plant and equipment, intangible assets, and other non-financial assets. There are two notable exceptions: shares issued in a business combination, which are dealt with under IFRS 3 ...