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IFRIC Rejections and Guidance- January 2010 - Transactions in which the manner of settlement is contingent on future events
- November 2009 - Transactions in which the manner of settlement is contingent on future events
- November 2006 - Employee benefit
trusts in the separate financial statements of the
sponsor
- November 2006 - Fair value measurement of a post-vesting transfer restriction
- November 2006 - Incremental fair value to employees as a result of unexpected capital restructurings
- May 2006 - Scope of IFRS 2: Share plans with cash alternatives at the discretion of the entity
- May 2006 - Share plans with cash alternatives at the discretion of employees: grant date and vesting periods
- November 2005 - Employee share loan plans
1. January 2010 - Transactions in which the manner of settlement is contingent on future events
Issue:
The IFRIC received a request to clarify the classification and measurement of share-based payment transactions for which the manner of settlement is contingent on either:- A future event that is outside the control of both the entity and the counterparty; or
- A future event that is within the control of the counterparty.
The IFRIC noted that paragraphs 34-43 of IFRS 2 provide guidance only on share-based payment transactions in which the terms of the arrangement provide the counterparty or the entity with a choice of settlement.
The IFRIC noted that IFRS 2 does not provide guidance on share-based payment transactions for which the manner of settlement is contingent on a future event that is outside the control of both the entity and the counterparty. The IFRIC noted that many other issues have been raised concerning the classification and measurement of share-based payments as cash-settled or equity-settled. The IFRIC therefore noted that it would be more appropriate for these issues to be considered collectively as part of a post-implementation review of IFRS 2.
IFRIC Decision
Therefore, the IFRIC decided not to add these issues to its agenda and recommended that those issues be dealt with by the IASB in a post-implementation review of IFRS 2.
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2. November 2009 - Transactions in which the manner of settlement is contingent on future events
Issue:
The IFRIC received a request to clarify the classification and measurement of share-based payment transactions for which the manner of settlement is contingent on either:- A future event that is outside the control of the entity or the counterparty; or
- A future event that is within the control of the counterparty.
The IFRIC noted that paragraphs 34-43 of IFRS 2 provide guidance only on share-based payment transactions in which the terms of the arrangement provide the counterparty or the entity with a choice of settlement.
The IFRIC noted that IFRS 2 does not provide guidance on share-based payment transactions for which the manner of settlement is contingent on a future event that is outside the control of either the entity or the counterparty. The IFRIC noted that many other issues have been raised concerning the classification and measurement of share based payments as cash settled or equity settled. The IFRIC therefore noted that it would be more appropriate for these issues to be considered collectively as part of a post implementation review of IFRS 2.
IFRIC Decision
Therefore, the IFRIC decided not to add these issues to its agenda and recommended that those issues be dealt with by the IASB in a post-implementation review of IFRS 2.
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3. November 2006 - Employee benefit trusts in the separate financial statements of the sponsor
Issue:
The IFRIC discussed an issue that had been submitted in connection with the amendment of SIC-12 to include within its scope special purpose entities established in connection with equity compensation plans. The issue relates to an employee benefit trust (or similar entity) that has been set up by a sponsoring entity specifically to facilitate the transfer of its equity instruments to its employees under a share-based payment arrangement. The trust holds shares of the sponsoring entity that are acquired by the trust from the sponsoring entity or from the market. Acquisition of those shares is funded either by the sponsoring entity or by a bank loan, usually guaranteed by the sponsoring entity. In most circumstances, the sponsoring entity controls the employee benefit trust. In some circumstances, the sponsoring entity may also have a direct control of the shares held by the trust.
The issue is whether guidance should be developed on the accounting treatment for the sponsor’s equity instruments held by the employee benefit trust in the sponsor’s separate financial statements.
IFRIC Decision:
The IFRIC discussed whether the employee benefit trust should be treated as an extension of the sponsoring entity, such as a branch, or as a separate entity. The IFRIC noted that the notion of ‘entity’ is defined neither in the Framework nor in IAS 27 Consolidated and Separate Financial Statements. Then, the IFRIC discussed whether the sponsoring entity should account, in its separate financial statements, for the net investment according to IAS 27 or rather for the rights and obligations arising from the assets and liabilities of the trust. The IFRIC noted that, in some circumstances, the sponsoring entity may have direct control of the shares held by the trust. The IFRIC also noted that the guidance included in the Framework and IAS 27 does not address the accounting for the shares held by the trust in the sponsor’s separate financial statements.
The IFRIC concluded that it could not reach a consensus on this matter on a timely basis, given the different types of trusts and trust arrangements that exist. The IFRIC noted that this issue relates to two active projects of the IASB:- Conceptual Framework
; and - Consolidation (including Special
Purpose Entities) .
For these reasons, the IFRIC decided not to take this issue onto its agenda.
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4. November 2006 - Fair value measurement of a post-vesting transfer restriction
This item is a re-exposure of reasons for rejection first proposed in March 2006 IFRIC Update.
Issue:
Whether the estimated value of shares issued only to employees and subject to post-vesting restrictions could be based on an approach that would look solely or primarily to an actual or synthetic market which consisted only of transactions between an entity and its employees and in which prices, for example, reflected an employee’s personal borrowing rate. The IFRIC was asked whether this approach is consistent with the requirements under IFRS 2.
IFRIC Decision:
The IFRIC noted the requirements in paragraph B3 of Appendix B to IFRS 2, which states that, ‘if the shares are subject to restrictions on transfer after vesting date, that factor shall be taken into account, but only to the extent that the post-vesting restrictions affect the price that a knowledgeable, willing market participant would pay for that share. For example, if the shares are actively traded in a deep and liquid market, post-vesting transfer restrictions may have little, if any, effect on the price that a knowledgeable, willing market participant would pay for those shares.’
Paragraph BC168 of the Basis for Conclusions on IFRS 2 notes that ‘the objective is to estimate the fair value of the share option, not the value from the employee’s perspective.’ Furthermore, paragraph B10 of Appendix B to IFRS 2 states that ‘factors that affect the value of the option from the individual employee’s perspective only are not relevant to estimating the price that would be set by a knowledgeable, willing market participant.’
The IFRIC noted that these paragraphs require consideration of actual or hypothetical transactions, not only with employees, but rather with all actual or potential market participants willing to invest in restricted shares that had been or might be offered to them.
The IFRIC believed that the issue was not expected to create significant divergence in practice and that the requirements of IFRS 2 were clear. The IFRIC, therefore, decided not to take the issue onto the agenda.
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5. November 2006 - Incremental fair value to employees as a result of unexpected capital restructurings
Issue:
The IFRIC was asked to consider a situation in which the fair value of the equity instruments granted to the employees of an entity increased after the sponsoring entity undertook a capital restructuring that was not anticipated at the date of grant of the equity instruments. The original share-based payment plan did not provide for any adjustments to the plan in the event of a capital restructuring. As a result, the equity instruments previously granted to the employees became more valuable as a consequence of the restructuring. The issue was whether the incremental value should be accounted for in the same way as a modification to the terms and conditions of the plan in accordance with IFRS 2 Share-based Payment.
IFRIC Decision:
The IFRIC believed that the case presented was not a normal commercial occurrence and was unlikely to have widespread significance. [The IFRIC, therefore, decided] not to take the issue onto the agenda.
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6. May 2006 - Scope of IFRS 2: Share plans with cash alternatives at the discretion of the entity
Issue:
Whether an employee share plan in which the employer had the choice of settlement in cash or in shares, and the amount of the settlement did not vary with changes in the share price of the entity should be treated as a share-based payment transaction within the scope of IFRS 2 Share-based Payment.
IFRIC Decision:
The IFRIC noted that IFRS 2 defines a share-based payment transaction as a transaction in which the entity receives goods or services as consideration for equity instruments of the entity or amounts that are based on the price of equity instruments of the entity.
IFRIC further noted that the definition of a share-based payment transaction does not require the exposure of the entity to be linked to movements in the share price of the entity. Moreover, it is clear that IFRS 2 contemplates share-based payment transactions in which the terms of the arrangement provide the entity with a choice of settlement, since they are specifically addressed in paragraphs 41–43 of IFRS 2. The IFRIC, therefore, believed that, although the amount of the settlement did not vary with changes in the share price of the entity, such share plans are share-based payment transactions in accordance with IFRS 2 since the consideration may be equity instruments of the entity.
The IFRIC also believed that, even in the extreme circumstances in which the entity was given a choice of settlement and the value of the shares that would be delivered was a fixed monetary amount, those share plans were still within the scope of IFRS 2.
The IFRIC believed that, since the requirements of IFRS 2 are clear, the issue is not expected to create significant divergence in practice. The IFRIC, therefore, decided not to take the issue onto the agenda.
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7. May 2006 - Share plans with cash alternatives at the discretion of employees: grant date and vesting periods
Issue:
The IFRIC considered an employee share plan in which employees were provided a choice to have cash at one date or shares at a later date. At the date the transactions were entered into, the parties involved understood the terms and conditions of the plans including the formula that would be used to determine the amount of cash to be paid to each individual employee (or the number of shares to be delivered to each individual employee) but the exact amount of cash or number of shares would only be known at a future date. The IFRIC was asked to confirm the grant date and vesting period for such share plans.
IFRIC Decision:
The IFRIC noted that IFRS 2 defines grant date as the date when there is a shared understanding of the terms and conditions. Moreover, IFRS 2 does not require grant date to be the date when the exact amount of cash to be paid (or the exact number of shares to be delivered) is known to the parties involved.
The IFRIC further noted that share-based payment transactions with cash alternatives at the discretion of the counterparty are addressed in paragraphs 34-40 of IFRS 2. Paragraph 35 of IFRS 2 states that, if an entity has granted the counterparty the right to choose whether a share-based payment transaction is settled in cash or by issuing equity instruments, the entity has granted a compound financial instrument, which includes a debt component (i.e. the counterparty’s right to demand cash payment) and an equity component (i.e. the counterparty’s right to demand settlement in equity instruments).
Paragraph 38 of IFRS 2 states that the entity shall account separately for goods or services received or acquired in respect of each component of the compound financial instrument.
[The IFRIC, therefore, believed] that the vesting period of the equity component and that of the debt component should be determined separately and the vesting period of each component may be different. The IFRIC believed that, since “grant date” is defined in IFRS 2 and the requirements set out in paragraphs 34-40 of IFRS 2 are clear, the issues are not expected to create significant divergence in practice. The IFRIC, therefore, decided that the issues should not be taken onto the agenda.
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8. November 2005 - Employee share loan plans
Issue:
The IFRIC was asked to consider the accounting treatment of employee share loan plans. Under many such plans, employee share purchases are facilitated by means of a loan from the issuer with recourse only to the shares. The IFRIC was asked whether the loan should be considered part of the potential share-based payment, with the entire arrangement treated as an option, or whether the loan should be accounted for separately as a financial asset.
IFRIC/AASB decision:
The issue shares using the proceeds of a loan made by the share issuer, when the loan is recourse only to the shares, would be treated as an option grant in which options were exercised on the date or dates when the loan was repaid. The IFRIC decided it would not expect diversity in practice and would not take this item onto its agenda.
The AASB agreed with the conclusions of the IFRIC.
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