On 20 June 2016, the International Accounting Standards Board (IASB) issued narrow scope amendments to IFRS 2 Share-based Payment to clarify the accounting for:
The changes apply to annual periods beginning on or after 1 January 2018 and can be early adopted. There are specific transitional provisions for each of these amendments (refer to discussion below).
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The liability shall be measured, initially and at the end of each reporting period until settled, at the fair value of the share appreciation rights, by applying an option pricing model, taking into account the terms and conditions on which the share appreciation rights were granted, and the extent to which the employees have rendered service to date. AASB 2, paragraph 33 |
Although AASB 2, paragraph 33 requires cash-settled share-based payment transactions to be measured at fair value using an option pricing model, it does not give guidance on if, and how, vesting and non-vesting conditions should be taken into account when measuring fair value of the cash-settled liability.
These changes clarify that market and non-market vesting conditions and non-vesting conditions should be taken into account when determining fair value of the cash-settled share-based liability in the same way as they would be for equity-settled share-based payment transactions.
Conditions |
Example |
How accounted for in cash-settled liability? |
Vesting – non-market |
Target sales/profit |
No impact on fair value. Adjust number of awards expected to vest. |
Vesting – market |
Target share price |
Adjust fair value at each reporting date until settlement |
Non-vesting |
Future commodity price |
Adjust fair value at each reporting date until settlement |
This means that for all types of conditions, the cumulative amount recognised for goods and services as consideration for cash-settled share-based payment transactions will equal the cash paid.
Cumulative expense = cash paid
These amendments only apply to share-based payment transactions:
The entity first applies these amendments on 1 January 2018 for entities with 31 December 2018 year ends, and 1 July 2018 for entities with 30 June 2019 year ends.
For unvested share-based payment transactions granted before the date that the entity first applies these amendments, the cash-settled liability must be remeasured on the date the amendments are first applied (e.g. 1 January or 1 July 2018), and the effects of remeasurement recognised in opening retained earnings on that date.
Tax laws in some countries require an entity to withhold an amount to settle an employee’s tax obligation for a share-based payment transaction, and to pay that amount over to the tax authorities on the employee’s behalf, usually in cash.
To fulfil these obligations, share-based payment transactions may allow/require entities to withhold a number of equity instruments, equal to the monetary value of the employee’s tax obligation, from the total number of equity instruments that otherwise would have been issued. The obligation to settle in cash would usually result in such transactions being classified as cash-settled. The changes in paragraphs 33E to 33H clarify that such transactions with the net settlement feature will be accounted for as follows:
However, paragraph 33H clarifies that this treatment will not apply where:
These amendments only apply to unvested (or vested but unexercised) share-based payment transactions that are granted on or after the date that the entity first applies the amendments, i.e. 1 January 2018 for entities with 31 December 2018 year ends and 1 July 2018 for entities with 30 June 2019 year ends.
For unvested (or vested but unexercised) share-based payment transactions that were previously accounted for as ‘cash-settled’ because of the net settlement feature, but are now classified as ‘equity-settled’, the carrying amount of the cash-settled liability must be reclassified as equity on the date these amendments are first applied.
Guidance paragraphs B44A to B44C have been added to clarify the accounting if the terms of a share-based payment are modified such that a cash-settled transaction becomes an equity-settled transaction. The steps to follow on modification date are:
Measure equity-settled transaction @ FV of equity instruments granted (A) |
> | Derecognise cash-settled liability (B) |
> | (A) Less (B) is recognised immediately profit or loss |
These amendments only apply to modifications that occur on or after the date that the entity first applies the amendments, i.e. 1 January 2018 for entities with 31 December 2018 year ends and 1 July 2018 for entities with 30 June 2019 year ends.