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AASB 2 - Share-based Payment

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Summary 
Developments, Key Differences & History 
Compared to IFRS 
Interpretations 
Rejection Notices 
Questions & Answers 
Articles 
AASB website 

AASB 2 and vesting conditions 
as reported in ANT 46/2006 and 47/2006 (amended 16 February 2007) 
 
Q: I have a share based payment scheme where certain employees are granted options for shares that vest in 3 years’ time subject to the employee still being employed at the end of the 3 year vesting date. Each year I estimate the number of employees that are still eligible for shares (i.e. still employed) but do I adjust each year's expense for those employees who have left and no longer have options that are excisable, which means that the cumulative expense is correct? 
 
A: Yes. The question states the options vest provided the employees remain employed for the 3 years. For service conditions such as this, or other conditions NOT related to the entity's share price, paragraph 19 of AASB 2 applies and the number of options are adjusted each year so the number ultimately recognised is the number that eventually vest. 
 
Paragraph 19 of AASB 2 'Share-based Payment' states that "vesting conditions shall be taken into account by adjusting the number of equity instruments included in the measurement of the transaction amount so that, ultimately, the amount recognised for goods or services received as consideration for the equity instruments granted shall be based on the number of equity instruments that eventually vest". 
 
IG Example 1 - illustrates a 3 year expense calculation that is based on the cumulative remuneration expense adjusted each year for the change in the number of employees that are eligible to have the options vested as shares, The final year 3 amount represents the actual options that vest as shares. 
 
However, if the conditions attached to the options are market conditions - ie conditions related to the entity's share price – they are treated quite differently. Paragraph 21 is relevant for these conditions - the market conditions must be taken into account when calculating the fair value of the options granted, but the number of options granted is NOT adjusted if the market conditions are not met.  
 
IG Example 5 - illustrates a grant of options with a market condition, noting that the amounts are recognised irrespective of the outcome of the market condition.  
The Basis for Conclusions issued by the IASB which is available to Australian residents on the AASB's website explains why the IASB adopted this approach.