6/5/23, 2:35 PM IFRS 2 — Share-based Payment

IFRS 2 — Share-based Payment

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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 set-
tled 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 2004 and first applied to annual periods beginning on or after 1 January 2005.

History of IFRS 2
Date De­vel­op­ment Comments
July 2000 G4+1 Dis­cus­sion Paper Accounting for Share-Based
Comment
Payments published deadline
31 October
2000
July 2001 Project added to IASB agenda History of
the project
20 September 2001 IASB invites comments on G4+1 Dis­cus­sion Paper Comment
(https://www.iasplus.com/en/news/2001/September/news283)Accounting for Share-Based Payments deadline
15
December
2001
7 November 2002 Exposure Draft ED 2 Share-Based Payment published Comment
(https://www.iasplus.com/en/news/2002/November/news615) deadline 7
March
2003
19 February 2004 IFRS 2 Share-based Payment issued Effective
(https://www.iasplus.com/en/news/2004/February/news1316) for annual
periods
beginning
on or after
1 January
2005
2 February 2006 Exposure Draft Vesting Con­di­tions and Can­cel­la­tions Comment
(https://www.iasplus.com/en/news/2006/February/news2676) published deadline 2
June 2006
17 January 2008 Amended by Vesting Con­di­tions and Can­cel­la­tions Effective
(https://www.iasplus.com/en/news/2008/January/news4064) (Amend­ments to IFRS 2) for annual
periods
beginning
on or after
1 January
2009
16 April 2009 Amended by Im­prove­ments to IFRSs Effective
(https://www.iasplus.com/en/news/2009/April/news4603) (https://www.iasplus.com/en/projects/completed/aip/annual-for annual
improvements-2007-2009) (scope of IFRS 2 and revised periods
IFRS 3) beginning
on or after
1 July 2009

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6/5/23, 2:35 PM IFRS 2 — Share-based Payment

18 June 2009 Amended by Group Cash-set­tled Share-based Payment Effective

(https://www.iasplus.com/en/news/2009/June/news5018) Trans­ac­tions for annual
periods
beginning
on or after
1 January
2010
12 December 2013 Amended by Annual Im­prove­ments to IFRSs 2010–2012 Effective
(https://www.iasplus.com/en/news/2013/12/aip-2010-2012) Cycle for annual
(https://www.iasplus.com/en/projects/completed/aip/annual-periods
improvements-2010-2012) (de­fi­­n­i­tion of vesting condition) beginning
on or after
1 July 2014
20 June 2016 (https://www.iasplus.com/en/news/2016/06/ifrs- Amended by Clas­si­fi­ca­tion and Mea­sure­ment of Share- Effective
2) based Payment Trans­ac­tions (Amend­ments to IFRS 2) for annual
periods
beginning
on or after
1 January
2018
Related In­ter­pre­ta­tions
None

Amend­ments under con­sid­er­a­tion

none

Summary of IFRS 2
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
(https://www.iasplus.com/en/publications/global/ifrs-in-focus/2004/ifrs-2) (PDF 49k).

De­f­in
­ ­it­ ion 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 in­stru­-
ments 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.
Scope

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.

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
(https://www.iasplus.com/en/standards/ifrs/ifrs3) Business Com­bi­na­tions. However, care should be taken to dis­tin­guish
share-based payments related to the ac­qui­si­tion from those related to con­tin­u­ing employee services
Second, IFRS 2 does not address share-based payments within the scope of para­graphs 8-10 of IAS 32
(https://www.iasplus.com/en/standards/ias/ias32) Financial In­stru­ments: Pre­sen­ta­tion, or para­graphs 5-7 of IAS 39
(https://www.iasplus.com/en/standards/ias/ias39) Financial In­stru­ments: Recog­ni­tion and Mea­sure­ment. Therefore, IAS
32 and IAS 39 should be applied for com­mod­ity-based de­riv­a­tive contracts that may be settled in shares or rights to
shares.
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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.

Recog­ni­tion and mea­sure­ment

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 pre-
sented 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 in­stru­-
ments 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.

Il­lus­tra­tion – Recog­ni­tion of employee share option grant

Company grants a total of 100 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 15. The company expects that all 100 options will vest and therefore records the following entry at 30 June
20X5 - the end of its first six-month interim reporting period.
Dr. Share option expense 250
Cr. Equity 250
[(100 × 15) ÷ 6 periods] = 250 per period
If all 100 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 fol-
lowing entry at 31 December 20X6 would be made:
Dr. Share option expense 150
Cr. Equity 150
[(90 × 15) ÷ 6 periods = 225 per period. [225 × 4] – [250+250+250] = 150
Mea­sure­ment guidance

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:
General fair value mea­sure­ment principle. In principle, trans­ac­tions in which goods or services are received as con­sid­-
er­a­tion 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.
Mea­sure­ment guidance. 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

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account by adjusting the number of equity in­stru­ments included in the mea­sure­ment of the trans­ac­tion amount so that, ul­-
ti­mately, 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.
More mea­sure­ment guidance. 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 report-
ing date until final set­tle­ment.
Per­for­mance con­di­tions. 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 mea­-
sure­ment (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 pay-
ment trans­ac­tion, and are adjusted each period until such time as the equity in­stru­ments vest.

Note: Annual Im­prove­ments to IFRSs 2010–2012 Cycle (https://www.iasplus.com/en/projects/completed/aip/annual-improve-

ments-2010-2012) amends the de­fi­­n­i­tions of  'vesting condition' and 'market condition' and adds de­fi­­n­i­tions for 'per­for­mance con-
dition' and 'service condition' (which were pre­vi­ously part of the de­fi­­n­i­tion of 'vesting condition').  The amend­ments are effective for
annual periods beginning on or after 1 July 2014.

Mod­if­ i­ca­tions, 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).

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.g. by reduction of the exercise price or issuance of ad­di­tional
in­stru­ments), the in­cre­men­tal amount is recog­nised over the remaining vesting period in a manner similar to the original amount. If
the mod­i­fi­ca­tion occurs after the vesting period, the in­cre­men­tal amount is recog­nised im­me­di­ately. If the fair value of the new in­-
stru­ments 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 re­place­-
ment 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.

Dis­clo­sure

Required dis­clo­sures include:

the nature and extent of share-based payment arrange­ments that existed during the period

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how the fair value of the goods or services received, or the fair value of the equity in­stru­ments granted, during the period
was de­ter­mined
the effect of share-based payment trans­ac­tions on the entity's profit or loss for the period and on its financial position.
Effective date

IFRS 2 is effective for annual periods beginning on or after 1 January 2005. Earlier ap­pli­ca­tion is en­cour­aged.
Tran­si­tion

All eq­uity-set­tled share-based payments granted after 7 November 2002, 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 in­stru­-
ments 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 earn-
ings 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 2002. Ad­di­tion­ally, a first-time adopter is not required to apply IFRS 2
to share-based payments granted after 7 November 2002 that vested before the later of (a) the date of tran­si­tion to IFRS and (b) 1
January 2005. 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.
Dif­fer­ences with FASB Statement 123 Revised 2004

In December 2004, the US FASB published FASB Statement 123 (revised 2004) Share-Based Payment. Statement 123(R)
requires that the com­pen­sa­tion cost relating to share-based payment trans­ac­tions be recog­nised in financial state­ments. Click for
FASB Press Release (https://www.iasplus.com/en/binary/usa/0412fasbprfas123r.pdf) (PDF 17k). Deloitte (USA) has published a
special issue of its Heads Up newslet­ter sum­maris­ing the key concepts of FASB Statement No. 123(R). Click to download the
Heads Up Newslet­ter (https://www.iasplus.com/en/binary/usa/headsup/headsup11-10.pdf) (PDF 292k). While Statement 123(R) is
largely con­sis­tent with IFRS 2, some dif­fer­ences remain, as described in a Q&A document FASB issued along with the new
Statement:

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Q22. Is the Statement con­ver­gent with International Financial Reporting Standards?

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.
IFRS 2 requires the use of the modified grant-date method for share-based payment arrange­ments with non­em­ploy­ees. In
contrast, Issue 96-18 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 in­stru­-
ments 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 his­tor­i­-
cal 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 pur-
poses, IFRS 2 requires that no deferred tax asset be rec­og­nized for the com­pen­sa­tion cost related to the time value com-
ponent 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 sub­-
se­quent 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 avail-
able 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 de­ter­-
min­ing net income under IFRS 2.

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.

March 2005: SEC Staff Accounting Bulletin 107

On 29 March 2005, the staff of the US Se­cu­ri­ties and Exchange Com­mis­sion issued Staff Accounting Bulletin 107 dealing with val­-
u­a­tions and other accounting issues for share-based payment arrange­ments by public companies under FASB Statement 123R
Share-Based Payment. For public companies, val­u­a­tions under Statement 123R are similar to those under IFRS 2 Share-based
Payment. SAB 107 provides guidance related to share-based payment trans­ac­tions with non­em­ploy­ees, the tran­si­tion from non-
public to public entity status, valuation methods (including as­sump­tions such as expected volatil­ity and expected term), the
accounting for certain re­deemable financial in­stru­ments issued under share-based payment arrange­ments, the clas­si­fi­ca­tion of
com­pen­sa­tion expense, non-GAAP financial measures, first-time adoption of Statement 123R in an interim period, cap­i­tal­i­sa­tion of
com­pen­sa­tion cost related to share-based payment arrange­ments, accounting for the income tax effects of share-based payment
arrange­ments on adoption of Statement 123R, the mod­i­fi­ca­tion of employee share options prior to adoption of Statement 123R,
and dis­clo­sures in Man­age­ment's Dis­cus­sion and Analysis (MD&A) sub­se­quent to adoption of Statement 123R. One of the in­ter­-
pre­ta­tions in SAB 107 is whether there are dif­fer­ences between Statement 123R and IFRS 2 that would result in a rec­on­cil­ing
item:

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Question: 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 123R that would result in a rec­on­cil­ing item under Item 17 or 18 of Form 20-F?

In­ter­pre­tive Response: 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 123R. Ac­cord­ingly, the staff believes that ap­pli­ca­tion of Statement 123R's mea­sure­ment guidance would not generally
result in a rec­on­cil­ing item required to be reported under Item 17 or 18 of Form 20-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 123R that may result in rec­on­cil­ing
items. [Footnotes omitted]

Click to download:
SEC Press Release (https://www.iasplus.com/en/binary/usa/0503secpr.pdf) (PDF 30k)
Staff Accounting Bulletin 107 (https://www.iasplus.com/en/binary/usa/0503sab107.pdf) (PDF 362k)
March 2005: 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 2004, as will be required under FASB Statement
123R Share-Based Payment starting in third-quar­ter 2005:
the reported 2004 post-tax net income from con­tin­u­ing op­er­a­tions of the S&P 500 companies would have been reduced
by 5%, and
2004 NASDAQ 100 post-tax net income from con­tin­u­ing op­er­a­tions would have been reduced by 22%.

Those are key findings of a study conducted by the Equity Research group at Bear, Stearns & Co. Inc. The purpose of the study is
to help investors gauge the impact that expensing employee stock options will have on the 2005 earnings of US public companies.
The Bear, Stearns analysis was based on the 2004 stock option dis­clo­sures in the most recently filed 10Ks of companies that
were S&P 500 and NASDAQ 100 con­stituents as of 31 December 2004. 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 123R 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. The report remains copyright Bear, Stears & Co. Inc., all rights reserved. Click to download 2004 Earnings Impact of Stock
Options on the S&P 500 & NASDAQ 100 Earnings (https://www.iasplus.com/en/binary/resource/0503bearstearns.pdf) (PDF 486k).

November 2005: Standard & Poor's Study on Impact of Expensing Stock Options

In November 2005 Standard & Poor's published a report of the impact of expensing stock options on the S&P 500 companies.
FAS 123(R) requires expensing of stock options (mandatory for most SEC reg­is­trants in 2006). IFRS 2 is nearly identical to FAS
123(R). S&P found:
Option expense will reduce S&P 500 earnings by 4.2%. In­for­ma­tion Tech­nol­ogy is affected the most, reducing earnings by
18%.... P/E ratios for all sectors will be increased, but will remain below his­tor­i­cal averages.
The impact of option expensing on the Standard & Poor's 500 will be no­tice­able, but in an en­vi­ron­ment of record earnings,
high margins and his­tor­i­cally low operating price-to-earn­ings ratios, the index is in its best position in decades to absorb
the ad­di­tional expense.

S&P takes issue with those companies that try to emphasise earnings before deducting stock option expense and with those ana-
lysts who ignore option expensing. The report em­pha­sises that:

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Standard & Poor's will include and report option expense in all of its earnings values, across all of its business lines. This includes
Operating, As Reported and Core, and applies to its an­a­lyt­i­cal work in the S&P Domestic Indices, Stock Reports, as well as its for-
ward estimates. It includes all of its elec­tronic products.... The in­vest­ment community benefits when it has clear and con­sis­tent in­-
for­ma­tion and analyses. A con­sis­tent earnings method­ol­ogy that builds on accepted accounting standards and pro­ce­dures is a
vital component of investing. By sup­port­ing this de­fi­­n­i­tion, Standard & Poor's is con­tribut­ing to a more reliable in­vest­ment en­vi­ron­-
ment.

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 2001, 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 pro­ce­-
dures. 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.
January 2008: Amendment of IFRS 2 to clarify vesting con­di­tions and can­cel­la­tions

On 17 January 2008, the IASB published final amend­ments to IFRS 2 Share-based Payment to clarify the terms 'vesting con­di­-
tions' 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 con­-
di­tions.
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 un­-
recog­nised 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. Any payment in
excess of the fair value of the equity in­stru­ments granted is recog­nised as an expense.

The Board had proposed the amendment in an exposure draft on 2 February 2006. The amendment is effective for annual periods
beginning on or after 1 January 2009, with earlier ap­pli­ca­tion permitted.

Click for Press Release (https://www.iasplus.com/en/binary/pressrel/0801ifrs2vesting.pdf) (PDF 47k).

Deloitte has published a Special Edition of our IAS Plus Newslet­ter

(https://www.iasplus.com/en/binary/iasplus/0801ifrs2vesting.pdf) ex­plain­ing the amend­ments to IFRS 2 for vesting con­di­tions and
can­cel­la­tions (PDF 126k).

June 2009: IASB amends IFRS 2 for group cash-set­tled share-based payment trans­ac­tions, withdraws IFRICs 8 and 11

On 18 June 2009, the IASB issued amend­ments to IFRS 2 Share-based Payment that clarify the accounting for group cash-set­-
tled 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 ser-
vices from employees or suppliers but its parent or another entity in the group must pay those suppliers. The amend­ments make
clear that:
An entity that receives goods or services in a share-based payment arrange­ment must account for those goods or ser-
vices 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.

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 11. The amend­ments are effec-
tive for annual periods beginning on or after 1 January 2010 and must be applied ret­ro­spec­tively. Earlier ap­pli­ca­tion is permitted.

https://www.iasplus.com/en/standards/ifrs/ifrs2 8/9
6/5/23, 2:35 PM IFRS 2 — Share-based Payment

Click for IASB press release (https://www.iasplus.com/en/binary/pressrel/0906ifrs2amendment.pdf) (PDF 103k).

June 2016: IASB clarifies the clas­si­fi­ca­tion and mea­sure­ment of share-based payment trans­ac­tions

On 20 June 2016, 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.

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 eq­-
uity-set­tled had it not included the net set­tle­ment feature.

Accounting for mod­if­ i­ca­tions 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 dere­cog­-
nised 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.

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