IFRS 2 | Share-based Payment

1

Objective

The objective is to specify financial reporting for share-based payment transactions. It requires reflecting the effects of such transactions in profit or loss and financial position, including expenses for share options granted to employees.

2

Scope

The Standard applies to all share-based payment transactions, including: (a) equity-settled transactions; (b) cash-settled transactions; and (c) transactions with a choice of settlement in cash or equity. It applies even if goods or services cannot be specifically identified.

3A

Group Transactions

The Standard applies to share-based payment transactions settled by another group entity or shareholder on behalf of the entity receiving goods or services.

4

Holder Capacity

Transactions with employees in their capacity as holders of equity instruments (e.g., purchasing shares at a price available to all holders) are not share-based payment transactions.

5

Business Combinations

The Standard does not apply to equity instruments issued in a business combination in exchange for control. However, it does apply to instruments granted to employees of the acquiree in return for continued service.

6

Financial Instruments

It does not apply to transactions under contracts within the scope of IAS 32 or IFRS 9 (financial instruments).

7

Recognition

An entity recognises goods or services received when it obtains the goods or as services are received. It recognises a corresponding increase in equity (for equity-settled) or a liability (for cash-settled).

8

Expense Recognition

If goods or services received do not qualify for recognition as assets, they are recognised as expenses.

10

Equity-Settled Measurement

For equity-settled transactions, the entity measures the goods or services received, and the increase in equity, directly at the fair value of the goods or services received, unless that fair value cannot be estimated reliably.

11

Employee Services

For transactions with employees, the fair value of services received is measured by reference to the fair value of the equity instruments granted, because the fair value of services is typically not reliably measurable. This is measured at the grant date.

13

Non-Employee Services

For transactions with parties other than employees, there is a rebuttable presumption that the fair value of goods/services can be estimated reliably. This is measured at the date the entity obtains the goods or the counterparty renders service.

14

Immediate Vesting

If equity instruments vest immediately, the entity presumes services have been received. It recognises the full amount on the grant date.

15

Vesting Period

If instruments vest only after completing a specified period of service, the entity accounts for services as they are rendered during the vesting period.

16

Fair Value Determination

Fair value of equity instruments is measured at the measurement date based on market prices. If unavailable, a valuation technique consistent with generally accepted methodologies (e.g., option pricing models) is used.

19

Vesting Conditions

Vesting conditions, other than market conditions, are not included in the fair value estimate. Instead, they are taken into account by adjusting the number of equity instruments included in the measurement so that the amount recognised is based on the number that eventually vest.

21

Market Conditions

Market conditions (e.g., a target share price) are taken into account when estimating the fair value of equity instruments at the grant date.

21A

Non-Vesting Conditions

Non-vesting conditions are taken into account when estimating the fair value of equity instruments. Goods or services are recognised if all vesting conditions are met, regardless of whether non-vesting conditions are satisfied.

23

Post-Vesting

No subsequent adjustment is made to total equity after the vesting date, even if options are later forfeited or not exercised. Transfers within equity are permitted.

24

Reliability Exception

In rare cases where fair value cannot be estimated reliably, the entity measures the equity instruments at their intrinsic value, remeasured at each reporting date until final settlement.

27

Modifications

The entity recognises, as a minimum, the services received measured at the grant date fair value of the original equity instruments (unless they do not vest). It also recognises the effects of modifications that increase the total fair value or are otherwise beneficial to the employee.

28

Cancellations

If a grant is cancelled or settled during the vesting period (other than by forfeiture), it is accounted for as an acceleration of vesting. The amount that would have been recognised over the remainder of the period is recognised immediately.

30

Cash-Settled Measurement

For cash-settled transactions, the entity measures the goods/services acquired and the liability incurred at the fair value of the liability. The liability is remeasured at each reporting date and at settlement, with changes recognised in profit or loss.

32

Cash-Settled Recognition

Services and the liability are recognised as the employee renders service.

33

Liability Valuation

The liability is measured at fair value (e.g., using an option pricing model) taking into account terms and conditions and the extent of service rendered.

33E

Withholding Tax

If an arrangement has a net settlement feature for withholding tax obligations, it is classified as equity-settled in its entirety if it would have been so classified without that feature.

34

Settlement Choice

Transactions with a choice of settlement in cash or equity are accounted for as cash-settled to the extent a liability has been incurred, or as equity-settled if no liability has been incurred.

35

Counterparty Choice

If the counterparty has the choice, the entity has granted a compound financial instrument (debt component + equity component).

41

Entity Choice

If the entity has the choice, it determines whether it has a present obligation to settle in cash. If so, it accounts for it as cash-settled. If not, it accounts for it as equity-settled.

43A

Group Entities

For group transactions, the entity receiving goods/services measures them as equity-settled if the awards are its own equity instruments or it has no obligation to settle. Otherwise, it is cash-settled.

44

Disclosure Objective

An entity shall disclose information to enable users to understand the nature and extent of share-based payment arrangements.

45

Disclosure Details

Required disclosures include: description of arrangements, terms and conditions, number and weighted average exercise prices of options (outstanding, granted, forfeited, exercised, expired), and weighted average share price for options exercised.

46

Fair Value Disclosure

An entity discloses information to understand how the fair value of goods/services or equity instruments was determined (e.g., option pricing model inputs).

50

Financial Effect Disclosure

An entity discloses the effect of transactions on profit or loss and financial position, including total expense recognised and the carrying amount of liabilities.

53

Transitional Provisions

For equity-settled transactions, the IFRS applies to grants made after 7 November 2002 that had not yet vested at the effective date. Retrospective application is encouraged but not required for earlier grants if fair value was publicly disclosed.

Appendix A

Definitions

• Cash-settled share-based payment transaction: A share-based payment transaction in which the entity acquires goods or services by incurring a liability to transfer cash or other assets to the supplier of those goods or services for amounts that are based on the price (or value) of equity instruments (including shares or share options) of the entity or another group entity.
• Employees and others providing similar services: Individuals who render personal services to the entity and either (a) the individuals are regarded as employees for legal or tax purposes, (b) the individuals work for the entity under its direction in the same way as individuals who are regarded as employees for legal or tax purposes, or (c) the services rendered are similar to those rendered by employees.
• Equity instrument: A contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.
• Equity instrument granted: The right (conditional or unconditional) to an equity instrument of the entity conferred by the entity on another party, under a share-based payment arrangement.
• Equity-settled share-based payment transaction: A share-based payment transaction in which the entity (a) receives goods or services as consideration for its own equity instruments (including shares or share options), or (b) receives goods or services but has no obligation to settle the transaction with the supplier.
• Fair value: The amount for which an asset could be exchanged, a liability settled, or an equity instrument granted could be exchanged, between knowledgeable, willing parties in an arm's length transaction.
• Grant date: The date at which the entity and another party (including an employee) agree to a share-based payment arrangement, being when the entity and the counterparty have a shared understanding of the terms and conditions of the arrangement.
• Intrinsic value: The difference between the fair value of the shares to which the counterparty has the (conditional or unconditional) right to subscribe or which it has the right to receive, and the price (if any) the counterparty is (or will be) required to pay for those shares.
• Market condition: A performance condition upon which the exercise price, vesting or exercisability of an equity instrument depends that is related to the market price (or value) of the entity's equity instruments (or the equity instruments of another entity in the same group).
• Measurement date: The date at which the fair value of the equity instruments granted is measured for the purposes of this IFRS.
• Performance condition: A vesting condition that requires: (a) the counterparty to complete a specified period of service (ie a service condition); the service requirement can be explicit or implicit; and (b) specified performance target(s) to be met while the counterparty is rendering the service required in (a).
• Reload feature: A feature that provides for an automatic grant of additional share options whenever the option holder exercises previously granted options using the entity's shares, rather than cash, to satisfy the exercise price.
• Reload option: A new share option granted when a share is used to satisfy the exercise price of a previous share option.
• Service condition: A vesting condition that requires the counterparty to complete a specified period of service during which services are provided to the entity
• Share-based payment arrangement: An agreement between the entity (or another group entity or any shareholder of any group entity) and another party (including an employee) that entitles the other party to receive (a) cash or other assets of the entity for amounts that are based on the price (or value) of equity instruments (including shares or share options) of the entity or another group entity, or (b) equity instruments (including shares or share options) of the entity or another group entity, provided the specified vesting conditions, if any, are met.
• Share-based payment transaction: A transaction in which the entity (a) receives goods or services from the supplier of those goods or services (including an employee) in a share-based payment arrangement, or (b) incurs an obligation to settle the transaction with the supplier in a share-based payment arrangement when another group entity receives those goods or services.
• Share option: A contract that gives the holder the right, but not the obligation, to subscribe to the entity's shares at a fixed or determinable price for a specified period of time.
• Vest: To become an entitlement. Under a share-based payment arrangement, a counterparty's right to receive cash, other assets or equity instruments of the entity vests when the counterparty's entitlement is no longer conditional on the satisfaction of any vesting conditions.
• Vesting condition: A condition that determines whether the entity receives the services that entitle the counterparty to receive cash, other assets or equity instruments of the entity, under a share-based payment arrangement.
• Vesting period: The period during which all the specified vesting conditions of a share-based payment arrangement are to be satisfied.