Objective: IFRS 2 requires entities to recognize share-based payment transactions in their financial statements, including transactions with employees or other parties to be settled in cash, other assets, or equity instruments of the entity.
- Applies to all share-based payment transactions including equity-settled and cash-settled
- Covers transactions with employees and non-employees
- Key issues: measurement, recognition, and disclosure of share-based payments
Equity-settled Share-based Payment: Transactions where the entity receives goods or services as consideration for equity instruments of the entity.
Cash-settled Share-based Payment: Transactions where the entity acquires goods or services by incurring liabilities to the supplier based on the price of the entity's shares or other equity instruments.
Transactions with Settlement Alternatives: Transactions where either the entity or the counterparty has a choice of whether the entity settles in cash or by issuing equity instruments.
A share-based payment transaction should be recognized when the goods are received or services are rendered:
| Transaction Type | Recognition Approach |
|---|---|
| Employee Services | Recognize as the employees render service |
| Goods from Non-employees | Recognize when goods are obtained |
| Services from Non-employees | Recognize as services are rendered |
Note: The transaction is recognized as either an expense or as an asset, depending on whether the goods or services received qualify for recognition as an asset.
Equity-settled Transactions: Measured at fair value of the equity instruments granted at grant date.
Cash-settled Transactions: Measured at fair value of the liability, which is remeasured at each reporting date until settled.
- For employee services, fair value is measured at grant date
- For non-employee transactions, fair value is measured at date goods/services are received
- Vesting conditions impact whether and how much expense is recognized
Company grants 1,000 share options to employees with fair value of $10 each
Vesting period: 3 years
Annual expense recognition: (1,000 × $10) / 3 = $3,333 per year
- Service Conditions: Require the counterparty to complete a specified period of service
- Performance Conditions: Require specified performance targets to be met
- Market conditions are considered in fair value measurement
- Non-market vesting conditions are considered in estimating the number of equity instruments expected to vest
Measurement Approaches
| Type | Initial Measurement | Subsequent Treatment |
|---|---|---|
| Equity-settled (employees) | Fair value at grant date | No re-measurement (except for non-market vesting conditions) |
| Equity-settled (non-employees) | Fair value of goods/services received at delivery date | Re-measured until performance complete |
| Cash-settled | Fair value at measurement date | Re-measured at each reporting date until settlement |
Vesting Conditions Summary
| Condition Type | Definition | Accounting Treatment | Examples |
|---|---|---|---|
| Service Condition | Requires employee to complete specified period of service | Adjust number of expected shares (true-up approach) | Must remain employed for 3 years |
| Non-market Performance Condition | Depends on entity-specific performance targets | Adjust number of expected shares (true-up approach) | Revenue targets, EBITDA goals, IPO completion |
| Market Condition | Depends on market variables (e.g., share price) | Included in fair value at grant date (no true-up) | Share price reaching $50, outperforming index |
- Nature and extent of share-based payment arrangements
- How fair value was determined
- Effect of share-based payments on profit/loss and financial position
- Information about options exercised during the period
- Options outstanding at period end with exercise prices and dates
- For liabilities arising from cash-settled transactions, how fair value was determined
- Any modifications to arrangements during the period