[Submitted by CA.Divya Balasubramanian,
ICA India, CPA Australia]
August 30, 2015
Share-based payments (SBPs) under IFRS 2 is being talked about and its impact is considered to be very complex.
Below are some basic pointers relating to the standard but please remember these points are to assist with the process of understanding the standard and it is not a substitute to reading and understanding the standard.
The types of SBPs (applicability)
- Equity-settled SBP - The counterparty receives actual shares or options to acquire shares.
Equity-settled, in which the entity receives goods or services as consideration for equity instruments of the entity (including shares or share options)
- Cash-settled SBP - The counterparty receives cash from the entity (at any time in the future) based on the value of the shares (so-called phantom shares)
Cash-settled, in which the entity receives goods or services by incurring a liability to the supplier that is based on the price (or value) of the entity’s shares or other equity instruments of the entity
- SBPs with a choice of settlement in cash or by issuing equity instruments. - The choice could be either the counterparty’s or the entities.
Transactions in which the entity receives goods or services and either the entity or the supplier of those goods or services have a choice of settling the transaction in cash (or other assets) or equity instruments.
- IFRS 2 also applies to transfers by shareholders to parties (including employees) that have transferred goods or services to the entity. This would include transfers of equity instruments of the entity or fellow subsidiaries by the entity’s parent entity to parties that have provided goods and services.
- IFRS 2 also applies when an entity does not receive any specifically identifiable good/services.
IFRS 2 does not apply to:
- Transactions in which the entity acquires goods as part of the net assets acquired in a business combination to which IFRS 3 Business Combinations applies
- Share-based payment transactions in which the entity receives or acquires goods or services under a contract within the scope of IAS 32 Financial Instruments: Presentation and IAS 39 Financial Instruments: Recognition and Measurement
- Transactions with an employee in his/her capacity as a holder of equity instruments.
Which entity(ies)’s shares can result in a SBP transaction
A SBP can occur based on:
- The entity’s shares
- The entity’s parent’s shares
- The entity’s subsidiary(ies)’s shares
- A sister-subsidiary’s shares
- Recognise the goods or services received or acquired in a share-based payment transaction when the goods are obtained or as the services are received
- Recognise an increase in equity for an equity settled share-based payment transaction
- Recognise a liability for a cash-settled share based payment transaction
- When the goods or services received or acquired do not qualify for recognition as assets, recognise an expense.
Who can grant a SBP
- The entity
- The entity’s parent
- A sister-subsidiary (generally seen as being on behalf of the parent entity)
- Any shareholder of the entity However, it is important to note that it is the entity that is receiving the good or service that must recognise the underlying SBP expense, not necessarily the entity granting the SBP.