IFRS Interpretations Committee - update from last meeting
The Board received an update on the activities of the IFRS Interpretations Committee, following the Committee's recent meeting.
Some Board members were not in complete agreement with the Committee's tentative decision on the IFRS 2 issue relating to share-based payments settled net of tax withholdings. These members do not regard the Committee's response as the only appropriate answer under the existing requirements of IFRS 2. The staff agreed to gather the Board members' views and communicate them to the Committee. No decisions were taken during the session.
IFRS 2 — Vesting and non-vesting conditions
The IFRS Interpretations Committee has analysed a number of issues relating to IFRS 2 brought to it as requests for clarification or amendments to IFRS 2 and sought solutions consistent with the underlying principles in IFRS 2 for the following six issues:
- correlation between an employee’s responsibility and the performance target
- share market index target
- performance period longer than the required service period
- non-compete provision
- interaction of multiple vesting conditions
- termination of employment
The Committee considered the root causes for these issues to be a lack of clarity in the current definition of vesting conditions, the absence of a definition for non-vesting conditions and no guidance on the interaction of multiple vesting conditions. The Committee considered several paths forward to incorporate its conclusions into IFRS 2, but as there was a diversity of views and given the magnitude, effectiveness and timeliness of the issues, requested direction from the Board on how to proceed with the project.
The Board considered the following alternatives to incorporate the conclusions of the Committee into IFRS 2:
- Annual improvements
- A separate amendment to IFRS 2 or
- As part of the post-implementation review of IFRS 2
The staff observed that these issues satisfy the agenda criteria for Annual Improvements, but acknowledged that the extent of the amendments, especially the proposed changes to the definitions within IFRS 2, might justify a separate amendment project to IFRS 2.
Some Board members noted that share-based payments are complex transactions and that by making separate amendments in order to address these 6 issues identified by the Committee, would open the door on a multitude of other issues not yet considered. In their opinion, a post-implementation review would be the only realistic alternative to move forward. Other Board members believed that a separate amendment project could be finalised more quickly than the Annual improvements which are tied to an annual cycle. The staff supported this, explaining that the conclusions reached by the Committee are the same as the majority view in practice and will preclude the minority views developed to date.
The Chairman noted that IFRS 2 is not scheduled for a post-implementation review in the foreseeable future and that it is not a priority when compared to other standards such as IAS 12 and IAS 21 which are also due for comprehensive reviews. He suggested asking the National Standard Setters to identify what exactly is causing the issues with IFRS 2 and how they could be resolved. The Board reiterated its priorities in terms of the MoU projects and recommended referring the matter back to the Committee to determine whether any of the issues can be resolved through an Interpretation or annual improvements. Those that can be resolved in those ways should be addressed by the Committee. The remaining issues will be considered as an agenda decision for the Board's work plan post-2011.