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IFRS 2: Changes in Contributions to Employee Stock Purchase Plans (ESPPs)

Go To List of IFRIC Issues Issue Description: Accounting for employee contributions to employee share purchase plans, such as the save-as-you-earn plans in the United Kingdom, and for changes in those contributions. Discussion at the November 2004 IFRIC Meeting The IFRIC considered a draft interpretation. The IFRIC agreed that where an employee ceases to participate in the savings plan and therefore loses the right to exercise options, there are two viable alternative treatments. The first is to treat this as a cancellation and to recognise the remaining expense to be recognised immediately, or the second to continue to recognise the expense over the previously determined vesting period. Two further alternatives of treating this as a vesting condition and therefore reversing all of the related expense, or to simply stop expensing without any reversal were discounted as being inconsistent with IFRS 2. The IFRIC agreed that as the entity is no longer receiving future service in respect of the employee's right to participate in the option scheme (which they have forfeited by lapsing their savings, and therefore are not taking this benefit into account in determining whether to provide future service) the cessation of saving should be treated as a cancellation under IFRS 2. The IFRIC agreed to proceed with a draft interpretation on this basis providing that a balanced view of alternative treatments was provided in the Basis for Conclusions. Discussion at the December 2004 IFRIC Meeting The IFRIC considered a draft interpretation based on the decisions made at the November meeting that when an employee ceases to contribute to an Employee Share Purchase Plan and is therefore not able to buy shares under the plan, this is accounted for as a cancellation, and immediate recognition of the expense that otherwise would have been recognised during the vesting period is required. Where an employee changes from one plan to another the entity should determine whether the new plan is considered to be a replacement for the old plan. If it is, this is considered a modification. If it is not, the cessation of contributions to the old plan must be treated as a cancellation and the admission to the new plan as a new grant. The IFRIC agreed that this interpretation should apply retrospectively, subject to the requirements of IFRS 2, and where relevant IFRS 1. The staff agreed to consider whether an amendment to IFRS 1 is required to reflect this. The IFRIC agreed to include in the basis for conclusions some of their discussions around the importance (or lack thereof) of who is considered to be cancelling the employee's involvement in the plan. They also agreed to clarify that there is no accounting impact on the IFRS 2 expense if the employee goes the whole way through the savings plan but then elects not to buy the shares. In addition the interpretation would note that where an employee leaves this is considered to be forfeiture - the interpretations will only apply when the employee continues to be employed. The IFRIC agreed, subject to the resolution of the issue as to whether IFRS 1 requires consequential amendment and editorial amendments that the draft interpretation should be issued with a 75-day comment period. IFRIC D11 Issued December 2004 IFRIC Draft Interpretation D11 Changes in Contributions to Employee Share Purchase Plans (ESPPs) was issued 16 December 2004. Click for Press Release (PDF 59k). The comment deadline is 1 March 2005. The draft Interpretation is available publicly on IASB's Website. Discussion at the May 2005 IASB Meeting At a recent meeting the IFRIC was unable to reach consensus on the appropriate accounting for changes in contributions to employee share purchase plans, and the chair requested that the matters under debate be brought before the Board. The Board agreed that their should be no difference in the accounting whether the employee or the employer had cancelled the share-based payment transaction - in either case the requirements of IFRS 2 in respect of cancellations (that is accelerated expensing) apply. The Board noted that this was consistent with FAS 123 (r) and also consistent with a discussion they had in respect of executives voluntarily forfeiting share options during the development of IFRS 2. The Board noted that this did result in an anomaly - if the employee ceases to save prior to ceasing employment (possibly in anticipation of cessation of employment) and the options are cancelled, accelerated vesting would occur, but if the employee ceases employment first, truing up would be allowed. However, the Board agreed that this was a result of the bright line they had been forced to draw in the development of IFRS 2 to enable truing up. The Board agreed that vesting conditions comprise service and performance conditions only. The staff will report to the IFRIC the outcome of the Board debate. Discussion at the June 2005 IASB Meeting As a result of the IFRIC's deliberations on D11, the IASB had been asked to consider whether IFRS 2 should be amended. The IASB agreed to amend the Standard to clarify that: The cancellation or settlement provisions do not apply only when the entity has cancelled the scheme (that is cancellations by the employee are also caught by these requirements); and Vesting conditions are service or performance conditions. The IFRIC agreed that, in light of these amendments, a final interpretation arising from D11 was not considered necessary at this time; however, members would consider whether there are any related issues that will not be resolved that should be brought back to the IFRIC Agenda Committee. It was noted that the Board would consider whether re-exposure was necessary for these amendments – the IFRIC strongly recommended that the amendments should be exposed, together with a comprehensive basis for conclusions. Project removed from IFRIC agenda.