Exposure Draft of 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:
- Accounting for transactions within the 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.
The modified staff recommendations will be presented to the Board in one of the next Board meetings.