Discussion at the October 2007 IASB Meeting
At its September 2007 meeting, the IFRIC decided to amend IFRIC 11 IFRS 2–Group and Treasury Share Transactions to clarify that certain share-based payment arrangements are within the scope of IFRS 2 Share-based Payment and to specify how the employee services received by the subsidiary should be measured in its financial statements. In addition, the IFRIC agreed to suggest to the Board (consequential) amendments to IFRS 2 to clarify its scope, particularly paragraph 3 of IFRS 2. (See September 2007 IAS Plus IFRIC Notes).
Subject to editorial comments the Board agreed to the proposed amendments to both IFRIC 11 and IFRS 2 (actual text was not included in the observer notes).
Some Board members noted that it would be better to amend IFRS 2 with consequential amendments to IFRIC 11 rather than the other way round. However, no decision regarding the due process was made at this meeting.
Exposure Draft Issued 13 December 2007
On 13 December 2007, the IASB issued for comment an exposure draft of proposed amendments to IFRS 2 Share-based Payment and IFRIC 11 IFRS 2 – Group and Treasury Share Transactions.
The proposals respond to requests for guidance on how a group entity that receives goods or services from its suppliers (including employees) should account for the following arrangements (referred to by the IASB as group cash-settled share-based payment transactions):
- Arrangement 1 – the entity's suppliers will receive cash payments that are linked to the price of the equity instruments of the entity
- Arrangement 2 – the entity's suppliers will receive cash payments that are linked to the price of the equity instruments of the entity's parent
Under either arrangement, the entity's parent has an obligation to make the required cash payments to the entity's suppliers. The entity itself does not have any obligation to make such payments.
The proposed amendment to IFRS 2 clarifies that IFRS 2 applies to arrangements such as those described above even if the entity that receives goods or services from its suppliers has no obligation to make the required share-based cash payments.
The proposed amendment to IFRIC 11 specifies that the entity should measure the goods or services in accordance with
the requirements for cash-settled share-based payment transactions.
Comment deadline is 17 March 2008. Click for Press Release (PDF 51k).
Discussion at the May 2008 IFRIC Meeting
The IFRIC discussed comments received on the IASB's exposure draft of proposed amendments to IFRS 2 Share-based Payment and IFRIC 11 IFRS 2–Group and Treasury Share Transactions – Group Cash-settled Share-based Payment Arrangements (the ED).
The staff noted that this ED was being discussed with the IFRIC because the IASB's ED was triggered by a reference from the IFRIC to the IASB.
The staff noted that respondents expressed general agreement with the proposals regarding scope and measurement for group arrangements between parent and subsidiary but that severe concerns were raised regarding the application of the proposals to arrangements other than those between parent and subsidiary.
Scope and classification
The main concerns raised by constituents were:
- A contribution in equity from parent should not be recorded for arrangements other than those between parent and subsidiary.
- There are inconsistencies between the scope of IFRS 2 and IFRIC 11 as proposed and, therefore, the scope and terminology should be aligned among these IFRSs.
- The ED extends the scope of IFRS 2 on a case-by-case basis. Instead the definitions of 'equity-settled share-based payments' and 'cash-settled share-based payments' in Appendix A of IFRS 2 should be amended.
Alternatively, a more comprehensive project could be undertaken to amend IFRS 2 and in this context the main principles of IFRIC 11 and IFRIC 8 could be incorporated in IFRS 2.
Classification and measurement
The main concerns raised by constituents were:
- A classification as cash-settled share-based payments in the financial statements of the subsidiary would be inappropriate since the subsidiary has no liability in either of the arrangements described in the ED.
- The ED has not articulated the IFRS principle for the 'push-down accounting' of the parent's liability in the financial statements of the subsidiary.
- Remeasurement: The changes in the fair value of the parent's liability should not be recorded in the subsidiary's profit or loss since these changes would be changes in the parent's liability.
The IFRIC had a very preliminary discussion of some of these issues and made suggestions to the staff, but no decisions were requested or made.
Project plan/ way forward
The IFRIC agreed to participate in assisting the IASB to redeliberate issues in the ED in light of respondents' comments. Specifically, it will address issues related to scope and classification in July 2008 and issues related to measurement at its September 2008 meeting. The IASB will discuss the IFRIC's conclusions at the October 2008 IASB meeting. If no further Board discussion is required, the amendments to IFRS 2 and IFRIC 11 should be issued in December 2008.
Discussion at the July 2008 IFRIC Meeting
Exposure Draft IFRS 2 Share-Based Payment and IFRIC 11: IFRS 2 – Group Treasury Share Transactions – Preliminary Comment Letter Analysis
The IFRIC commenced its detailed redeliberation of the proposed amendments to IFRS 2 and IFRIC 11. The exposure draft (ED) proposes to include cash-settled group share-based payment transactions within the scope of IFRS 2 and would provide guidance on the appropriate accounting. In May 2008 the IFRIC had been presented with a preliminary analysis. The staff structured the session as follows:
- Scope
- Accounting for transactions within the scope
Scope
Regarding the topic of scope the staff highlighted that even with the scope definition as proposed there would still be group share-based payment transactions that would not be covered by IFRS 2 and that the proposals aggravate that issue. One reason for that seemed to be that the proposals would amend the scope, not the defined terms. The staff therefore presented the following recommendations:
- To amend the related definitions in Appendix A of IFRS 2;
- Paragraph 2 of IFRS 2 be amended to mirror the revised defined terms;
- Paragraph 3 of IFRS 2 be amended to more clearly articulate the principle of IFRS 2 when a party other than the entity receiving the goods or services settles the group share-based payment transaction.
One IFRIC member asked whether this is something the Board should deliberate. The chairman answered that the issue originally came from the IFRIC, but the Board formally issued the ED as it included amendments to existing Standards and that once IFRIC concludes its redeliberations it recommends its conclusions to the Board.
Some IFRIC members expressed concerns over the view the ED takes – group or entity view, that is, is the group accounting relevant for the accounting in the subsidiary? One IFRIC member questioned whether separate financial statements of joint ventures or associates would be addressed by the amendments. It was stated that only subsidiaries would be covered and that this would be made clear by referring to the definitions in IAS 27.
The IFRIC agreed to the staff recommendations subject to editorial changes.
Accounting for transactions within the scope
The staff then turned to the accounting for the transactions within the scope of IFRS 2 in a group situation. Many commentators had argued that if an entity (the subsidiary) has no obligation to make a payment, it would not be sound to require the subsidiary in the its financial statements to recognise a liability. This would also conflict with the Framework. The IFRIC had a lengthy debate about whether the accounting in the parent and in the subsidiary should be symmetrical. Some IFRIC members were of the view that there should be some relationship – which would often result in some form of push-down accounting. Others followed the entity route and concluded that the subsidiary should account for the transaction as an equity-settled share-based payment. One of the Board members present highlighted the structuring opportunities that would result if the subsidiary would account for such a transaction as an contribution by the parent under an equity-settled accounting model.
One IFRIC member highlighted that the solution should be in line with the conclusions reached during the redeliberation of D23.
There was a lengthy debate about whether, when a transaction is accounted for as equity-settled, it should reflect any true-ups when value and/or vesting changes which would be important in some scenarios (for example, if the share-based payments are granted to employees of the subsidiary) should be considered.
The IFRIC coordinator highlighted that the staff wanted to avoid introducing an additional accounting model and tried to be as close to IFRS 2 as possible.
In the end, there seemed to be agreement over a model that would true-up for vesting of the share-based payments, but not for other changes in value. This would effectively be the accounting for equity-settled share-based payments as per current IFRS 2.
The chairman summed up the discussions and highlighted that any conclusion reached would be reported back to the Board including any strong minority views. The IFRIC coordinator reemphasised that the general approach to the accounting model was not to increase complexity.
The chairman than took a vote on the staff recommendations reflecting the outcome of the discussions as suggested by one of the Board members present. The IFRIC accepted the recommendations with two dissents.
Next steps
The modified staff recommendations will be presented to the Board in one of the next Board meetings.
Discussion at the October 2008 IASB Meeting
The purpose of this session was for the staff to summarise the IFRIC discussions and recommendations to the Board from the May and July 2008 meetings, along with the rationales underlying the recommended changes from the proposals in the ED. The staff agenda was to discuss first the issue of scope and then to agree on measurement.
The Board discussed how group cash-settled share-based payment transactions should be treated in the separate financial statements of the subsidiary. There was a divergence of views as to whether these transactions were actually in the scope of IFRS 2 or should be considered under IAS 19 or IAS 39.
The Board decided that if services were provided by employees, then (at least part of) the debit was within the scope of IFRS 2 or IAS 19. No further conclusions were reached.
Discussion at the December 2008 IASB Meeting
In a previous meeting, the Board tentatively confirmed a proposal in the ED to include all forms of group share-based payments in the scope of IFRS 2 Share-based Payment, regardless if they are equity-settled or cash-settled. In addition, to achieve this objective the Board also concurred with the IFRIC's recommendations to amend some of the defined terms in IFRS 2 rather than amend IFRIC 11 IFRS 2-Group and Treasury Share Transactions and to make it clear that:
- (a) the receiving entity accounts for the goods and services received in accordance with IFRS 2; and
- (b) the settling entity accounts for the settlement in accordance with IFRS 2.
At this meeting, the Board considered possible alternatives to measure these group arrangements and the IFRIC's recommended changes from the proposed classification for accounting in the ED.
The Board agreed with the staff's preferred approach but spent much time disagreeing about how they had expressed it in the meeting papers. Ultimately, the Board agreed that the share-based payment expense should be measured in the separate financial statements of the subsidiary as equity-settled when the employees are given the entity's own equity instruments or when the entity has no obligation to settle; in all other circumstances, it is measured as asset-settled. (This has the effect that a share-based payment could be equity-settled in the separate financial statements of a subsidiary but asset-settled in the consolidated financial statements of the parent.)
The Board agreed to this approach, citing the following advantages:
- It always records an IFRS 2 expense on the subsidiary's books. This expense attribution is a definite improvement on the model under IAS 19 for group benefit plans. The IAS 19 model requires the subsidiary to record an expense based only on the amount of cash contribution paid.
- It addresses two concerns raised by respondents to the ED about measuring group cash-settled share-based payment transactions as cash-settled. Respondents did not agree that the subsidiary should:
- recognise a liability when it has no obligation to settle the payment to the employees, and
- remeasure the parent's equity contribution based on changes in the value of the parent's liability.
- It provides a reporting basis consistent with the entity perspective in the subsidiary's separate financial statements.
- It provides a broad and consistent principle that all separate entities can apply to group share-based payment transactions. Though not the main goal of this project, this also preserves the existing guidance in IFRIC 11 for group equity-settled share-based payment transactions.
Next steps
The staff will prepare a ballot draft (likely to be circulated in February, given other demands on the Board's time), with any sweep issues discussed at the February or March Board meeting. The staff will also prepare an assessment of whether re-exposure is required.
One Board member indicated that he was likely to dissent to the amendment.
Discussion at the April 2009 IASB Meeting
Issues arising from drafting the pre-ballot draft of amendments to IFRS 2
The Board agreed to replace the existing paragraph 3 that addresses shareholder transfers with a new paragraph 3A to state clearly the clarified scope of IFRS 2 for group share-based payment transactions. The Board confirmed that they did not think that the new wording represented a change in guidance for those group transactions already in the scope of IFRS 2.
The Board agreed that the final amendments to IFRS 2 should:
- explicitly include in the scope of IFRS 2 a settling entity only in a group share-based payment transaction, and
- not include a settling group entity in the revised defined terms of 'equity-settled' and 'cash-settled' share-based payment transactions.
The Board agreed that that the accounting for transfers of employees among group entities for all awards that are accounted for as equity-settled should remain the same as the consensus reached in IFRIC 11.
The Board agreed that that the defined term 'share-based payment arrangement' not be amended to refer to the goods or services that the suppliers provide. (There was a concern that, because the notion of 'exchange of goods or services' is not part of the defined term 'share-based arrangement' but is included in the defined term 'share-based transaction', some inconsistency in practice would emerge.)
The Board amended paragraphs 44 and 45(a) of IFRS 2 related to the disclosure requirements to replace the term 'share-based payment arrangement' with 'share-based payment transaction'.
The Board reviewed an analysis of the criteria for re-exposure and concluded that re-exposure was not necessary.
The Board agreed that the effective date for the amendments should be accounting periods beginning on or after 1 January 2010.
The Board reaffirmed the retrospective transitional requirements as proposed in the ED and permitted the use of amounts previously recognised in the group's financial statements in the group entity's stand-alone financial statements if the information necessary for retrospective application is not available.
The Board agreed to add an example that addresses group cash-settled share-based payment transactions as Application Guidance.
No Board members indicated that they would dissent from the Amendments.
June 2009: IASB amends IFRS 2, withdraws IFRICs 8 and 11
On 19 June 2009, the IASB issued amendments to IFRS 2 Share-based Payment that clarify the accounting for group cash-settled share-based payment transactions. The amendments clarify how an individual subsidiary in a group should account for some share-based payment arrangements in its own
financial statements. In these arrangements, the subsidiary receives goods or services from employees or suppliers but its parent or another entity in the group must pay those suppliers. The amendments make clear that:
- An entity that receives goods or services in a share-based payment arrangement must account for those goods or services no matter which entity in the group settles the transaction, and no matter whether the transaction is settled in shares or cash.
- In IFRS 2 a 'group' has the same meaning as in IAS 27 Consolidated and Separate Financial Statements, that is, it includes only a parent and its subsidiaries.
The amendments to IFRS 2 also incorporate guidance previously included in IFRIC 8 Scope of IFRS 2 and IFRIC 11 IFRS 2–Group and Treasury Share Transactions. As a result, the IASB has withdrawn IFRIC 8 and IFRIC 11. Click for IASB Press Release (PDF 103k).
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