IFRS 2 Share-based Payment

Transcription

1 IFRS 2 Share-based Payment

2 Scope Share-based Payment Transaction where the entity receives goods or services as consideration Examples Equity instruments of the entity (including share options) Incurring liabilities to the supplier for amounts based on the price of the entity s shares Share options Share appreciation rights Restricted shares

3 Scope Scope Exemptions Issuance of shares to effect a business combination Requires careful judgement to determine whether subsequent share issuances to former owners who are employees are compensation or purchase consideration. Share-based payments in scope of IAS 32 or IAS 39 Contracts to buy a non-financial item that can be settled net (excluding normal purchase and sale contracts) Share-based payments not for the acquisition of goods or services, such as: Share dividends, purchase of treasury shares, share splits, issuance of shares

4 Overview 3 types of share based payments: Equity-settled Cash-settled With cashalternatives

5 Definitions Equity settled A SBP transaction in which the entity receives goods or services as consideration for equity instruments of the entity (including shares or share options). Cash settled A SBP transaction in which the entity acquires goods/ services by incurring a liability to transfer cash or other assets to the supplier of those goods/services for amounts that are based on the price (or value) of the entity s shares or other equity instruments of the entity.

6 Overview Equity-settled Cash-settled With cashalternatives Fair value measured at grant date only Fair value measured at each balance sheet date Equity Component Cash Component No changes in fair value after grant Changes in fair value recognised in profit or loss until exercise Changes in fair value follow split in equity and cashsettled

7 Overview Equity-settled Cash-settled With cashalternatives Fair value measured at grant date only Fair value measured at each balance sheet date Equity Component Cash Component No changes in fair value after grant Changes in fair value recognised in profit or loss until exercise Changes in fair value follow split in equity and cashsettled YES Allocate over vesting period Are there nonmarket based vesting conditions? NO Expense immediately

8 Equity Settled SBP s 2 types of transactions Other than employees Employees Other than employees: Measure FV of shares issues at direct cost of goods/services received Presumption that FV can be determined for goods/services received If can t determine FV -> FV equity instruments issues (as for employees)

9 Equity Settled SBP s (cont) Which of these can you FV? Salary? Holiday pay? Bonus? Loyalty? Experience curve? Personal interest in a company?

10 Equity Settled SBP s (cont) For employees, value using in-direct method FV equity instrument issued Measurement date = grant date Use market values for options If no Mkt Value, use generally accepted valuation methodology NO SPECIFIED METHOD

11 Conditions Used to have vesting conditions that determined when you received the shares Now have: VESTING CONDITIONS NON-VESTING CONDITIONS

12 New and improved definitions Annual Improvements Cycle: Amendments added the following definitions performance conditions and service conditions and amended the definitions of vesting conditions and market conditions.

13 Vesting Conditions 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. means that the employee does not get the right to exercise options, unless certain conditions are met Used to be Market and Non-Market been redefined NOW: Two types of vesting conditions Service Conditions Performance Conditions

14 Vesting Conditions - Service A vesting condition that requires the counterparty to complete a specified period of service during which services are provided to the entity. If the counterparty, regardless of the reason, ceases to provide service during the vesting period, it has failed to satisfy the condition Service conditions require ONLY that the employee completes a specified period of service. does not require a performance target to be met. These are within the employees control For example: Employees must remain with the company for 3 years in order to receive the shares

15 Vesting Conditions - Performance Performance conditions require that: the counterparty completes a specified period of service (ie a service condition) the service requirement can be explicit or implicit AND specified performance target(s) must be met while the counterparty is rendering the service required Specific performance conditions include: Market conditions; and Other conditions

16 Performance target The period of achieving the performance targets: a) may not extend beyond the end of the service period; and b) may start before the service period on the condition that the commencement date of the performance target is not substantially before the commencement of the service period.

17 Performance target A performance target is defined by reference to: a) the entity s own operations (or activities) or the operations or activities of another entity in the same group (ie a nonmarket condition); or b) the price (or value) of the entity s equity instruments or the equity instruments of another entity in the same group (including shares and share options) (ie a market condition). A performance target might relate either to the performance of the entity as a whole or to some part of the entity (or part of the group), such as a division or an individual employee.

18 Vesting Conditions - Performance Market performance condition: A condition upon which the exercise price, vesting or exercisability of an equity instrument depends that is related to the market price of the entity s own equity instruments Examples: attaining a specified share price, specified amount of intrinsic value of a share option, achieving a specified target that is based on the market price of the entity s equity instruments relative to an index of market prices of equity instruments of other entities.

19 Vesting Conditions - Performance Other performance condition: Vesting conditions other than those that meet the definition of a market condition Examples: Achieving specific growth in revenue Non-financial targets (e.g.: IPO or Number of employees) Specific increase in EPS

20 Summary VESTING CONDITIONS Condition ONLY requires a specified period of service NO YES PERFORMANCE CONDITION SERVICE CONDITION MARKET CONDITIONS OTHER CONDITIONS

21 How do they impact the accounting? Service Conditions Not included in day 1 fair value calculation Spread over vesting period Performance Conditions Market conditions Include in fair value calculation Don t adjust during vesting period Other conditions Not included in day 1 fair value calculation Spread over vesting period (as with service conditions)

22 Accounting for equity settled SBP s DR: Charge is recognised in profit or loss when services are rendered CR: Credit is recognised in equity (no specific account required)

23 Non-vesting conditions A non-vesting condition is a condition that arises when there is a condition that is not linked to a specified period of service Who can choose to meet the condition? Entity Employee Neither

24 How do they impact the accounting? Non-vesting conditions are all included in the grant date fair value calculation NOTE: For entity controlled non-vesting conditions, it is always assumed that cancellation of the plan is assumed to be nil

25 Vesting Conditions: What happens when they are not met? Service conditions: Entity revises expectation of number of shares that will vest annually Performance conditions: Market: No change in accounting continue to expense Other: Entity revises expectation of number of shares that will vest annually

26 Non-vesting Conditions: What happens when they are not met? Neither party controls decision: No change in accounting continue to expense Employee controls decision: Recognise remaining amount of expense that would have been recognised IMMEDIATELY Revalue any resulting liability that may have arisen in the scheme

27 Cash settled SBP s A financial liability is any liability that is: a contractual obligation: (i) to deliver cash or another financial asset to another entity; or (ii) to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the entity

28 Cash settled SBP s (cont) As these are actual financial liabilities, will be treated as financial liabilities No difference in treatment between employees and nonemployees Recognise liability on grant date using option pricing model taking into account and terms or conditions attached to shares

29 Accounting for cash settled SBP s DR: Charge is recognised in profit or loss when services are rendered CR: Credit is recognised as liability

30 NOTE: Liability remains recognised until ALL options have been exercised Any further FV movements in liability after vesting date continue to be recognised.

31 Cash Alternatives SBP s where there is a choice to take: Cash OR Shares Choice can be at the option of: The issuer (company) OR The recipient (employee)

32 Cash alternatives - Issuers Choice If the issuer has the choice, determine whether it is likely to issue cash or shares by considering the following: Intention Past practice Board decisions Commercial substance (ie: can legally issue shares / unlisted company?) Then follow appropriate accounting Default position: Equity settled SBP

33 Cash alternatives - Holders Choice Company has issued a compound FI (see IAS 32) Needs to split instrument and accounting as follows: Equity component -> Equity Settled SBP Debt component -> Cash Settled SBP Other than employees : FV of equity component = FV of goods / services less FV of debt Employees : First measure FV of debt component The measure FV of equity component

34 Cash alternatives - Holders Choice (cont) If settlement in shares: Transfer liability component to equity If settlement in cash: Liability settled in full No amount transferred out of equity What happens to this amount??

35 Standard has since been amended!

36 Amendment 1 Scope of IFRS 2 states: An entity shall apply this IFRS in accounting for all share-based payment transactions, whether or not the entity can identify specifically some or all of the goods or services received, including: Equity-Settled SBP s Cash Settled SBP s Option of Cash or Equity

37 Amendment 1 Scope of IFRS 2 states: An entity shall apply this IFRS in accounting for all share-based payment transactions, whether or not the entity can identify specifically some or all of the goods or services received, including: Equity-Settled SBP s Cash Settled SBP s Option of Cash or Equity

38 Amendment 1 - Scope Standard goes onto state that: In the absence of specifically identifiable goods or services, other circumstances may indicate that goods or services have been (or will be) received, in which case this IFRS applies.

39 Amendment 2 - Scope IFRS 2 applies when: An entity received good or services and another entity (or shareholder of any group entity) in the same group settles the SBP transaction An entity has an obligation to settle a SBP transaction when another entity receives the goods or services

40 Treatment of Group Schemes Need to evaluate whether a transaction is equity or cash settled by assessing: The nature of the award The rights and obligations in the transaction NOTE: the amounts recognised by the entity receiving the goods/services, and the one paying for them, may not be the same.

41 Company receiving goods/services An entity shall account for a transaction as equity-settled when it is receiving goods/services and payment is in: Its own shares; or The entity has no obligation to settle the transaction All other transactions are accounted for as cash-settled SBP s

42 Company Settling Transaction For a group company settling the SBP transaction where it does NOT receive the goods or services, it will account for the transaction as equity-settled if the transaction is in its own shares All other SBP s are accounted for as cashsettled.

43 Payment In some cases the company receiving the goods/services needs to pay the company settling the transaction This does NOT impact the classification criteria detailed above

44 Transaction Group Accounts Jigsaw Separate Accounts Toys Separate Accounts Jigsaw grants share options to the employees of Toys. These will be settled by Jigsaw in shares of Toys when they vest. Toys grants its employees options in Toys. These will be settled in shares of Toys. Toys grants its employees shares in Jigsaw. These will be settled by Toys in shares of Jigsaw.

45 Transaction Group Accounts Jigsaw Separate Accounts Toys Separate Accounts Jigsaw grants share options to the employees of Toys. These will be settled by Jigsaw in cash when they vest. Jigsaw grants the employees of Toys shares in Jigsaw. These will be settled by Jigsaw in shares of Jigsaw. Toys has no obligation to pay for these shares.

46 Solution Dr: Share-based Payment Expense (P/L) Cr: Capital Contribution from Parent (equity)