Question

Explain the current accounting treatment for share-based payments under IFRS.

Answer 1

Current accounting treatment for share-based payments under IFRS

The issuance of shares or rights to shares requires an increase in a component of equity. IFRS 2 requires the offsetting debit entry to be expensed when the payment of goods or services does not represent an asset. The expense should be recognized as the goods or services are consumed. For example, the issuance of shares or rights to shares to purchase inventory would be presented as an increase in inventory and would be expensed only once the inventory is sold or impaired.

The issuance of fully vested shares, or rights to shares, is presumed to relate to past service, requiring the full amount of the grant-date fair value to be expensed immediately. The issuance of shares to employees with the vesting period is considered to relate to services over the vesting period. Therefore, the fair value of the share based payment, determined at the grant date, should be expensed over the vesting period.

As a general principle, the total expense related to equity-settled share based payments will equal the multiple of the total instruments that vest and the grant-date fair value of those instruments. However, if the equity-settled share based payment has a market related performance condition, the expense would still be recognized if all other vesting conditions are met.