IFRS 2 Share-based Payment requires an entity to recognise share-based payment transactions such as granted shares, share options, or share appreciation rights in its financial statements, including transactions with employees or other parties to be settled in cash, other assets, or equity instruments of the entity. Specific requirements are included for equity-settled and cash-settled share-based payment transactions, as well as those where the entity or supplier has a choice of cash or equity instruments.

IFRS 2 was originally issued in February and first applied to annual periods beginning on or after 1 January In June , the Deloitte IFRS Global Office published an updated version of our IAS Plus Guide to IFRS 2 Share-based Payment PDF k, pages. The guide not only explains the detailed provisions of IFRS 2 but also deals with its application in many practical situations.

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Because of the complexity and variety of share-based payment awards in practice, it is not always possible to be definitive as to what is the 'right' answer. However, in this guide Deloitte shares with you our approach to finding solutions that we believe are in accordance with the objective of the Standard. You will find a four-page summary of IFRS 2 in a special edition of our IAS Plus newsletter PDF 49k.

A share-based payment is a transaction in which the entity receives goods or services either as consideration for its equity instruments or by incurring liabilities for amounts based on the price of the entity's shares or other equity instruments of the entity. The accounting requirements for the share-based payment depend on how the transaction will be settled, that is, by the issuance of a equity, b cash, or c equity or cash. The concept of share-based payments is broader than employee share options.

IFRS 2 encompasses the issuance of shares, or rights to shares, in return for services and goods. Examples of items included in the scope of IFRS 2 are share appreciation rights, employee share purchase plans, employee share ownership plans, share option plans and plans where the issuance of shares or rights to shares may depend on market or non-market related conditions.

IFRS 2 applies to all entities. There is no exemption for private or smaller entities. Furthermore, subsidiaries using their parent's or fellow subsidiary's equity as consideration for goods or services are within the scope of the Standard.

IFRS 2 does not apply to share-based payment transactions other than for the acquisition of goods and services. Share dividends, the purchase of treasury shares, and the issuance of additional shares are therefore outside its scope. The issuance of shares or rights to shares requires an increase in a component of equity.

IFRS 2 requires the offsetting debit entry to be expensed when the payment for goods or services does not represent an asset. The expense should be recognised as the goods or services are consumed.

For example, the issuance of shares or rights to shares to purchase inventory would be presented as an increase in inventory and would be expensed only once the inventory is sold or impaired.

The issuance of fully vested shares, or rights to shares, is presumed to relate to past service, requiring the full amount of the grant-date fair value to be expensed immediately. The issuance of shares to employees with, say, a three-year vesting period is considered to relate to services over the vesting period.

Therefore, the fair value of the share-based payment, determined at the grant date, should be expensed over the vesting period. As a general principle, the total expense related to equity-settled share-based payments will equal the multiple of the total instruments that vest and the grant-date fair value of those instruments. In short, there is truing up to reflect what happens during the vesting period.

However, if the equity-settled share-based payment has a market related performance condition, the expense would still be recognised if all other vesting conditions are met. The following example provides an illustration of a typical equity-settled share-based payment.

Company grants a total of share options to 10 members of its executive management team 10 options each on 1 January 20X5. These options vest at the end of a three-year period. The company has determined that each option has a fair value at the date of grant equal to The company expects that all options will vest and therefore records the following entry at 30 June 20X5 - the end of its first six-month interim reporting period.

If all shares vest, the above entry would be made at the end of each 6-month reporting period. However, if one member of the executive management team leaves during the second half of 20X6, therefore forfeiting the entire amount of 10 options, the following entry at 31 December 20X6 would be made:. Depending on the type of share-based payment, fair value may be determined by the value of the shares or rights to shares given up, or by the value of the goods or services received:.

The amendments are effective for annual periods beginning on or after 1 July The determination of whether a change in terms and conditions has an effect on the amount recognised depends on whether the fair value of the new instruments is greater than the fair value of the original instruments both determined at the modification date.

IFRS 2 — Share-based Payment

Modification of the terms on which equity instruments were granted may have an effect on the expense that will be recorded. IFRS 2 clarifies that the guidance on modifications also applies to instruments modified after their vesting date. If the fair value of the new instruments is more than the fair value of the old instruments e. If the modification occurs after the vesting period, the incremental amount is recognised immediately. If the fair value of the new instruments is less than the fair value of the old instruments, the original fair value of the equity instruments granted should be expensed as if the modification never occurred.

The cancellation or settlement of equity instruments is accounted for as an acceleration of the vesting period and therefore any amount unrecognised that would otherwise have been charged should be recognised immediately. Any payments made with the cancellation or settlement up to the fair value of the equity instruments should be accounted for as the repurchase of an equity interest.

Any payment in excess of the fair value of the equity instruments granted is recognised as an expense. New equity instruments granted may be identified as a replacement of cancelled equity instruments.

In those cases, the replacement equity instruments are accounted for as a modification. The fair value of the replacement equity instruments is determined at grant date, while the fair value of the cancelled instruments is determined at the date of cancellation, less any cash payments on cancellation that is accounted for as a deduction from equity.

IFRS 2 is effective for annual periods beginning on or after 1 January Earlier application is encouraged. All equity-settled share-based payments granted after 7 November , that are not yet vested at the effective date of IFRS 2 shall be accounted for using the provisions of IFRS 2. Entities are allowed and encouraged, but not required, to apply this IFRS to other grants of equity instruments if and only if the entity has previously disclosed publicly the fair value of those equity instruments determined in accordance with IFRS 2.

The comparative information presented in accordance with IAS 1 shall be restated for all grants of equity instruments to which the requirements of IFRS 2 are applied. The adjustment to reflect this change is presented in the opening balance of retained earnings for the earliest period presented. IFRS 2 amends paragraph 13 of IFRS 1 First-time Adoption of International Financial Reporting Standards to add an exemption for share-based payment transactions.

Similar to entities already applying IFRS, first-time adopters will have to apply IFRS 2 for share-based payment transactions on or after 7 November Additionally, a first-time adopter is not required to apply IFRS 2 to share-based payments granted after 7 November that vested before the later of a the date of transition to IFRS and b 1 January A first-time adopter may elect to apply IFRS 2 earlier only if it has publicly disclosed the fair value of the share-based payments determined at the measurement date in accordance with IFRS 2.

In December , the US FASB published FASB Statement revised Share-Based Payment. Statement R requires that the compensation cost relating to share-based payment transactions be recognised in financial statements. Click for FASB Press Release PDF 17k.

IFRS 2 — Share-based Payment

Deloitte USA has published a special issue of its Heads Up newsletter summarising the key concepts of FASB Statement No. Click to download the Heads Up Newsletter PDF k. The Statement is largely convergent with International Financial Reporting Standard IFRS 2, Share-based Payment. The Statement and IFRS 2 have the potential to differ in only a few areas.

The more significant areas are briefly described below. Differences between the Statement and IFRS 2 may be further reduced in the future when the IASB and FASB consider whether to undertake additional work to further converge their respective accounting standards on share-based payment. On 29 March , the staff of the US Securities and Exchange Commission issued Staff Accounting Bulletin dealing with valuations and other accounting issues for share-based payment arrangements by public companies under FASB Statement R Share-Based Payment.

For public companies, valuations under Statement R are similar to those under IFRS 2 Share-based Payment. One of the interpretations in SAB is whether there are differences between Statement R and IFRS 2 that would result in a reconciling item:.

Does the staff believe there are differences in the measurement provisions for share-based payment arrangements with employees under International Accounting Standards Board International Financial Reporting Standard 2, Share-based Payment 'IFRS 2' and Statement R that would result in a reconciling item under Item 17 or 18 of Form F? The staff believes that application of the guidance provided by IFRS 2 regarding the measurement of employee share options would generally result in a fair value measurement that is consistent with the fair value objective stated in Statement R.

Accordingly, the staff believes that application of Statement R's measurement guidance would not generally result in a reconciling item required to be reported under Item 17 or 18 of Form F for a foreign private issuer that has complied with the provisions of IFRS 2 for share-based payment transactions with employees. However, the staff reminds foreign private issuers that there are certain differences between the guidance in IFRS 2 and Statement R that may result in reconciling items.

If US public companies had been required to expense employee stock options in , as will be required under FASB Statement R Share-Based Payment starting in third-quarter The purpose of the study is to help investors gauge the impact that expensing employee stock options will have on the earnings of US public companies.

Exhibits to the study present the results by company, by sector, and by industry. Visitors to IAS Plus are likely to find the study of interest because the requirements of FAS R for public companies are very similar to those of IFRS 2. We are grateful to Bear, Stearns for giving us permission to post the study on IAS Plus. FAS R requires expensing of stock options mandatory for most SEC registrants in IFRS 2 is nearly identical to FAS R.

The report emphasises that:. It includes all of its electronic products The investment community benefits when it has clear and consistent information and analyses. A consistent earnings methodology that builds on accepted accounting standards and procedures is a vital component of investing. The current debate as to the presentation by companies of earnings that exclude option expense, generally being referred to as non-GAAP earnings, speaks to the heart of corporate governance.

Additionally, many equity analysts are being encouraged to base their estimates on non-GAAP earnings. While we do not expect a repeat of the EBBS Earnings Before Bad Stuff pro-forma earnings of , the ability to compare issues and sectors depends on an accepted set of accounting rules observed by all. In order to make informed investment decisions, the investing community requires data that conform to accepted accounting procedures.

Of even more concern is the impact that such alternative presentation and calculations could have on the reduced level of faith and trust investors put into company reporting. The corporate governance events of the last two-years have eroded the trust of many investors, trust that will take years to earn back. In an era of instant access and carefully scripted investor releases, trust is now a major issue. On 17 January , the IASB published final amendments to IFRS 2 Share-based Payment to clarify the terms 'vesting conditions' and 'cancellations' as follows:.

The Board had proposed the amendment in an exposure draft on 2 February The amendment is effective for annual periods beginning on or after 1 January , with earlier application permitted. Click for Press Release PDF 47k. Deloitte has published a Special Edition of our IAS Plus Newsletter explaining the amendments to IFRS 2 for vesting conditions and cancellations PDF k. On 18 June , the IASB issued amendments to IFRS 2 Share-based Payment that clarify the accounting for group cash-settled share-based payment transactions.

The amendments clarify how an individual subsidiary in a group should account for some share-based payment arrangements in its own financial statements. In these arrangements, the subsidiary receives goods or services from employees or suppliers but its parent or another entity in the group must pay those suppliers.

The amendments make clear that:. The amendments to IFRS 2 also incorporate guidance previously included in IFRIC 8 Scope of IFRS 2 and IFRIC 11 IFRS 2—Group and Treasury Share Transactions. As a result, the IASB has withdrawn IFRIC 8 and IFRIC The amendments are effective for annual periods beginning on or after 1 January and must be applied retrospectively. Earlier application is permitted. Click for IASB press release PDF k. On 20 June , the International Accounting Standards Board IASB published final amendments to IFRS 2 that clarify the classification and measurement of share-based payment transactions:.

Accounting for cash-settled share-based payment transactions that include a performance condition. Until now, IFRS 2 contained no guidance on how vesting conditions affect the fair value of liabilities for cash-settled share-based payments. IASB has now added guidance that introduces accounting requirements for cash-settled share-based payments that follows the same approach as used for equity-settled share-based payments. IASB has introduced an exception into IFRS 2 so that a share-based payment where the entity settles the share-based payment arrangement net is classified as equity-settled in its entirety provided the share-based payment would have been classified as equity-settled had it not included the net settlement feature.

Accounting for modifications of share-based payment transactions from cash-settled to equity-settled. Until now, IFRS 2 did not specifically address situations where a cash-settled share-based payment changes to an equity-settled share-based payment because of modifications of the terms and conditions.

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Login Login Name Password Login Register Forgot password. Welcome My account Logout. Navigation International Financial Reporting Standards. Overview IFRS 2 Share-based Payment requires an entity to recognise share-based payment transactions such as granted shares, share options, or share appreciation rights in its financial statements, including transactions with employees or other parties to be settled in cash, other assets, or equity instruments of the entity.

Special edition of our IAS Plus newsletter You will find a four-page summary of IFRS 2 in a special edition of our IAS Plus newsletter PDF 49k. Definition of share-based payment A share-based payment is a transaction in which the entity receives goods or services either as consideration for its equity instruments or by incurring liabilities for amounts based on the price of the entity's shares or other equity instruments of the entity.

Scope The concept of share-based payments is broader than employee share options. There are two exemptions to the general scope principle: First, the issuance of shares in a business combination should be accounted for under IFRS 3 Business Combinations.

Therefore, IAS 32 and IAS 39 should be applied for commodity-based derivative contracts that may be settled in shares or rights to shares. Recognition and measurement The issuance of shares or rights to shares requires an increase in a component of equity. Illustration — Recognition of employee share option grant Company grants a total of share options to 10 members of its executive management team 10 options each on 1 January 20X5.

Share option expense Cr. However, if one member of the executive management team leaves during the second half of 20X6, therefore forfeiting the entire amount of 10 options, the following entry at 31 December 20X6 would be made: General fair value measurement principle. In principle, transactions in which goods or services are received as consideration for equity instruments of the entity should be measured at the fair value of the goods or services received.

Only if the fair value of the goods or services cannot be measured reliably would the fair value of the equity instruments granted be used. Measuring employee share options. 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.

When to measure fair value - options. For transactions measured at the fair value of the equity instruments granted such as transactions with employees , fair value should be estimated at grant date. When to measure fair value - goods and services. For transactions measured at the fair value of the goods or services received, fair value should be estimated at the date of receipt of those goods or services.

For goods or services measured by reference to the fair value of the equity instruments granted, IFRS 2 specifies that, in general, vesting conditions 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. IFRS 2 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. The standard does not specify which particular model should be used. If fair value cannot be reliably measured. IFRS 2 requires the share-based payment transaction to be measured at fair value for both listed and unlisted entities.

IFRS 2 permits the use of intrinsic value that is, fair value of the shares less exercise price in those "rare cases" in which the fair value of the equity instruments cannot be reliably measured.

However this is not simply measured at the date of grant. An entity would have to remeasure intrinsic value at each reporting date until final settlement. IFRS 2 makes a distinction between the handling of market based performance conditions from non-market performance conditions. Market conditions are those related to the market price of an entity's equity, such as achieving a specified share price or a specified target based on a comparison of the entity's share price with an index of share prices of other entities.

Market based performance conditions are included in the grant-date fair value measurement similarly, non-vesting conditions are taken into account in the measurement. However, the fair value of the equity instruments is not adjusted to take into consideration non-market based performance features - these are instead taken into account by adjusting the number of equity instruments included in the measurement of the share-based payment transaction, and are adjusted each period until such time as the equity instruments vest.

Modifications, cancellations, and settlements The determination of whether a change in terms and conditions has an effect on the amount recognised depends on whether the fair value of the new instruments is greater than the fair value of the original instruments both determined at the modification date.

Any payment in excess of the fair value of the equity instruments granted is recognised as an expense New equity instruments granted may be identified as a replacement of cancelled equity instruments.

Disclosure Required disclosures include: Effective date IFRS 2 is effective for annual periods beginning on or after 1 January Transition All equity-settled share-based payments granted after 7 November , that are not yet vested at the effective date of IFRS 2 shall be accounted for using the provisions of IFRS 2. Differences with FASB Statement Revised In December , the US FASB published FASB Statement revised Share-Based Payment.

Is the Statement convergent with International Financial Reporting Standards? IFRS 2 requires the use of the modified grant-date method for share-based payment arrangements with nonemployees.

In contrast, Issue requires that grants of share options and other equity instruments to nonemployees be measured at the earlier of 1 the date at which a commitment for performance by the counterparty to earn the equity instruments is reached or 2 the date at which the counterparty's performance is complete.

IFRS 2 contains more stringent criteria for determining whether an employee share purchase plan is compensatory or not. As a result, some employee share purchase plans for which IFRS 2 requires recognition of compensation cost will not be considered to give rise to compensation cost under the Statement.

IFRS 2 applies the same measurement requirements to employee share options regardless of whether the issuer is a public or a nonpublic entity. The Statement requires that a nonpublic entity account for its options and similar equity instruments based on their fair value unless it is not practicable to estimate the expected volatility of the entity's share price.

In that situation, the entity is required to measure its equity share options and similar instruments at a value using the historical volatility of an appropriate industry sector index. In tax jurisdictions such as the United States, where the time value of share options generally is not deductible for tax purposes, IFRS 2 requires that no deferred tax asset be recognized for the compensation cost related to the time value component of the fair value of an award.

A deferred tax asset is recognized only if and when the share options have intrinsic value that could be deductible for tax purposes. Therefore, an entity that grants an at-the-money share option to an employee in exchange for services will not recognize tax effects until that award is in-the-money.

In contrast, the Statement requires recognition of a deferred tax asset based on the grant-date fair value of the award. The effects of subsequent decreases in the share price or lack of an increase are not reflected in accounting for the deferred tax asset until the related compensation cost is recognized for tax purposes. The effects of subsequent increases that generate excess tax benefits are recognized when they affect taxes payable.

The Statement requires a portfolio approach in determining excess tax benefits of equity awards in paid-in capital available to offset write-offs of deferred tax assets, whereas IFRS 2 requires an individual instrument approach. Thus, some write-offs of deferred tax assets that will be recognized in paid-in capital under the Statement will be recognized in determining net income under IFRS 2. SEC Staff Accounting Bulletin On 29 March , the staff of the US Securities and Exchange Commission issued Staff Accounting Bulletin dealing with valuations and other accounting issues for share-based payment arrangements by public companies under FASB Statement R Share-Based Payment.

One of the interpretations in SAB is whether there are differences between Statement R and IFRS 2 that would result in a reconciling item: SEC Press Release PDF 30k Staff Accounting Bulletin PDF k March Bear, Stearns Study on Impact of Expensing Stock Options in the United States If US public companies had been required to expense employee stock options in , as will be required under FASB Statement R Share-Based Payment starting in third-quarter The report emphasises that: Amendment of IFRS 2 to clarify vesting conditions and cancellations On 17 January , the IASB published final amendments to IFRS 2 Share-based Payment to clarify the terms 'vesting conditions' and 'cancellations' as follows: Vesting conditions are service conditions and performance conditions only.

Other features of a share-based payment are not vesting conditions. Under IFRS 2, features of a share-based payment that are not vesting conditions should be included in the grant date fair value of the share-based payment. The fair value also includes market-related vesting conditions.

All cancellations, whether by the entity or by other parties, should receive the same accounting treatment. Under IFRS 2, a cancellation of equity instruments is accounted for as an acceleration of the vesting period. Therefore any amount unrecognised that would otherwise have been charged is recognised immediately.

Any payments made with the cancellation up to the fair value of the equity instruments is accounted for as the repurchase of an equity interest. IASB amends IFRS 2 for group cash-settled share-based payment transactions, withdraws IFRICs 8 and 11 On 18 June , the IASB issued amendments to IFRS 2 Share-based Payment that clarify the accounting for group cash-settled share-based payment transactions.

The amendments make clear that: An entity that receives goods or services in a share-based payment arrangement must account for those goods or services no matter which entity in the group settles the transaction, and no matter whether the transaction is settled in shares or cash. In IFRS 2 a 'group' has the same meaning as in IAS 27 Consolidated and Separate Financial Statements , that is, it includes only a parent and its subsidiaries.

IASB clarifies the classification and measurement of share-based payment transactions On 20 June , the International Accounting Standards Board IASB published final amendments to IFRS 2 that clarify the classification and measurement of share-based payment transactions: Accounting for cash-settled share-based payment transactions that include a performance condition Until now, IFRS 2 contained no guidance on how vesting conditions affect the fair value of liabilities for cash-settled share-based payments.

Classification of share-based payment transactions with net settlement features IASB has introduced an exception into IFRS 2 so that a share-based payment where the entity settles the share-based payment arrangement net is classified as equity-settled in its entirety provided the share-based payment would have been classified as equity-settled had it not included the net settlement feature.

Accounting for modifications of share-based payment transactions from cash-settled to equity-settled Until now, IFRS 2 did not specifically address situations where a cash-settled share-based payment changes to an equity-settled share-based payment because of modifications of the terms and conditions. The IASB has intoduced the following clarifications: On such modifications, the original liability recognised in respect of the cash-settled share-based payment is derecognised and the equity-settled share-based payment is recognised at the modification date fair value to the extent services have been rendered up to the modification date.

Any difference between the carrying amount of the liability as at the modification date and the amount recognised in equity at the same date would be recognised in profit and loss immediately. Quick links Deloitte e-learning on IFRS 2 IFRS 2 — Items not added to the agenda IFRS 2 — Clarifications of classification and measurement of share based payment transactions Research project — Share-based payments. Related news IASB publishes editorial corrections 21 Sep 19th ESMA enforcement decisions report released 28 Jul IASB clarifies the classification and measurement of share-based payment transactions 20 Jun We comment on the proposed amendments to IFRS 2 25 Mar European Union formally adopts Annual Improvements to IFRS - Cycle and amendments to IAS 19 09 Jan IASB proposes amendments to IFRS 2 to clarify the classification and measurement of share-based payment transactions 25 Nov All Related.

Related Publications EFRAG endorsement status report 14 December 14 Dec EFRAG endorsement status report 7 October 07 Oct IFRS in Focus — IASB introduced amendments to IFRS 2 related to the classification and measurement of share-based payment transactions 28 Jun EFRAG endorsement status report 21 June 21 Jun Related Dates Effective date of amendments to IFRS 2 01 Jan Contact us About Legal Privacy FAQs.

Correction list for hyphenation These words serve as exceptions. English Universal English British English American Deutsch. Amended by Improvements to IFRSs scope of IFRS 2 and revised IFRS 3. Amended by Annual Improvements to IFRSs — Cycle definition of vesting condition.

Amended by Classification and Measurement of Share-based Payment Transactions Amendments to IFRS 2.