IFRS 2 Share Based Payment Modifications account for the CHANGES in share-based payments that an entity incorporates as per IFRS 2.
Table of Contents
- IFRS 2 Share Based Payment Modifications – Modifications of Equity Settled SBP
- IFRS 2 Share Based Payment Modifications – Give & Take Modifications
- IFRS 2 Share Based Payment Modifications – Modifications that Change the Classification of SBP
- IFRS 2 Share Based Payment Modifications – Cancellation of Equity Settled SBP
|(a) Modifications that are beneficial to employees||(b) Modifications that are Not beneficial to employees|
1. Modifications that are Beneficial to Employees
|(a) Increase in FV of the Equity Settled SBP i.e.|
– Decrease in the Exercise Price
– Relaxation of Market Performance Conditions
– Relaxation of Non-Vesting Conditions
Additionally, recognize Incremental Fair Value (FV) Measured at the ‘Modification Date’ over the modified vesting period.
[Incremental Fair Value (FV) = FV of Equity Instruments after Modification – FV of Equity Instruments Before Modification]
|(b) Increase in No. of Equity Instruments Granted|
Additionally, recognize the Fair Value of Additional Equity Instruments granted Measured at ‘Modification Date’ over the period from date of modification to the end of vesting period of the additional equity instruments.
|(c) Other Beneficial Modifications i.e.|
– Relaxation of Service Conditions
– Relaxation of Non-Market Performance Conditions
Take MODIFIED vesting conditions into account Recognizing Expense for SBP.
2. Modifications that are Not Beneficial to Employees
|(a) Decrease in FV of the Equity Settled SBP i.e.|
– Increase in Exercise Price
– Tightening of Market Performance Conditions
– Tightening of Non-Vesting Conditions
|(b) Decrease in No. of Equity Instruments Granted|
Apply Cancellation Accounting for those cancelled SBP arrangement.
|(c) Other Non-Beneficial Modifications i.e.|
– Tightening of Service Condition
– Tightening of Non-Market Performance Conditions
Modifications having both favorable and unfavorable changes to the terms of Equity Settled Share-based Payment arrangement.
For Example, a Share Option grant can be modified by reducing the exercise price (give) and simultaneously reducing the number of options granted (take).
1. Accounting Treatment
Consider the Net Effect of BOTH the modifications and if the Net Effect is Beneficial then this net effect should be accounted for by applying the requirements for beneficial modifications to the net change.
1. Cash Settled SBP to Equity Settled SBP
This occurs when a New Equity Settled SBP is identified as a replacement for Cash Settled SBP.
1.1 Accounting Treatment
|Derecognize the liability for Cash Settled SBP.|
|Recognize Equity Settled SBP (i.e. SBPR) at its FV as at the modification date to the extent that the services have been rendered up to that date.|
|Recognize any difference between the liability de-recognized and SBPR recognized into P&L immediately.|
2. Equity Settled SBP to Cash Settled SBP
This occurs when a Cash Alternative at the employee’s discretion is subsequently added to an Equity Settled SBP that results in a Re-classification as a financial liability.
2.1 Accounting Treatment
At the ‘Modification Date’, RECLASSIFY an amount equal to the FV of liability from equity (SBPR) to liability.
|Liability to be Recognized > SBPR Already Recognized|
Recognize the excess as an expense in P&L at the date of modification.
Recognize the entire amount of liability as a reclassification from equity and do not recognize any loss in P&L.
[EITHER one of the above approaches to be used as an Accounting Policy to be applied consistently.]
|Liability to be Recognized < SBPR Already Recognized|
|– No gain is recognized in P&L for the difference between SBPR recognized and the amount reclassified to liability i.e. the difference remains in equity (SBPR).|
|– Subsequently, recognize the SBP expense on the basis of FV of equity instruments at grant date.|
|– Any subsequent Re-Measurement of the liability (from the modification date to settlement date) is recognized in P&L.|
|– Firstly, recognize SBP expense at FV of equity instruments at the grant date as if no modification had occured.|
The amount is credited partially to the liability and partially to equity in proportion of FV of liability and remaining SBPR on the modification date.
|– Second, remeasure the liability by applying the requirements of Cash Settled SBP with any gain/loss to be RECOGNIZED in P&L.|
Equity Settled SBP can be cancelled during the vesting period EITHER by:
- Employees by waiving the SBP for their own reasons; OR
- Employer with or without any compensation for such cancellation.
1. Cancellation without Compensation
Cancellation of Equity Settled SBP is accounted for as ‘Accelerated Vesting’ i.e. Immediately recognize the expense for the amount that would have been recognized for services over the remaining vesting period.
2. Cancellation with Compensation
2.1 Compensation – Cash Payment
|Cancellation of equity settled SBP is accounted for as accelerated vesting.|
|Payment against cancellation is accounted for as repurchase of equity to the extent that payment does not exceed the FV of the equity instruments granted, MEASURED at the repurchase date.|
|Payment in excess of FV of the equity repurchase on the repurchase date is recognized as an expense in P&L.|
2.2 Compensation – New Equity Settled SBP
|New Equity Settled SBP is Identified as Replacement for Cancelled Equity Settled SBP|
|The principles of Modification Accounting are applied.|
In applying it:
– Cancelled SBP is accounted for in the normal manner.
– Incremental Fair Value measured at the date on which the replacement award is issued is recognized over the modified vesting period.
[Incremental Fair Value = FV of Replacement Award – Net FV of Cancelled Award]
Net FV of Cancelled Award = FV of Cancelled Award Measured at Cancellation Date – Any Payment Made to Employees
|New Equity Settled SBP is Not Identified as Replacement for Cancelled Equity Settled SBP|
|Cancelled equity settled SBP is accounted for as Accelerated Vesting.|
|New equity settled SBP is accounted for SEPARATELY in the normal manner.|
IFRS 2 Share Based Payment Modifications presented by (IFRS 2) PUBLISHED in February 2004 requires an entity to recognize Share-Based Payment transactions (such as granted shares, share options, or share appreciation rights) in its Financial Statements, including transactions with employees or other parties to be settled in cash, other assets, or equity instruments of the entity.
Chartered Accountant (Institute of Chartered Accountants of Pakistan)
Bachelor of Accounting Honours (Asia e University, Malaysia)