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IFRS 2: Group Cash-settled share-based Payment Transactions

Go To List of IFRIC Issues Issue Description: Should the IFRIC discussed provide guidance on how to account for the following cash-settled share-based schemes in the financial statements of a subsidiary that receives services from its employees? Scheme 1: The employees of the subsidiary will be reimbursed by cash payments that are based on the price of the equity instruments of the subsidiary. Scheme 2: The employees of the subsidiary will be reimbursed by cash payments that are based on the price of the equity instruments of the parent of the subsidiary. Under both schemes, the parent (not the subsidiary) has the obligation to provide the employees of the subsidiary with the cash payments required. Discussion at the July 2007 IFRIC Meeting The IFRIC concluded that scheme 1 is in the scope of IFRS 2 in accordance with paragraph 6 of IFRIC 8 Scope of IFRS 2. With regard to scheme 2 the IFRIC believed that under the existing guidance this scheme would not be in the scope of IFRS 2. The IFRIC stated that the scheme is essentially cash-settled and share-based and that the subsidiary should measure the services received from its employees based on the requirements applicable to cash-settled share-based payment transactions. Some IFRIC members raised the concern that application of other standards (for instaqnce, IAS 19 Employee Benefits) may result in not recognising expenses in the subsidiary's books; for instance, if the parent does not charge its expenses to the subsidiary. Such an accounting treatment was considered to be misleading. The IFRIC began an assessment of this potential agenda item against its Agenda Criteria. In doing so, it agreed that this issue would best be addressed by amending the definition of cash-settled share-based payment transactions in IFRS 2. The IFRIC reached a tentative decision that this matter should be addressed by the IASB and should not be added to the IFRIC agenda. The staff was asked to draft a proposed amendment to IFRS 2 and consequential amendments to IFRIC 8 for discussion at a subsequent meeting. Discussion at the September 2007 IFRIC Meeting At the July 2007 meeting the IFRIC decided not to add this issue to its agenda but asked the staff to draft a tentative agenda decision as well as potential amendments to IFRS 2 (particularly paragraph 3) and consequential amendments to IFRIC 11 (see July IFRIC Meeting Notes). The alternative approach The staff brought to attention of the IFRIC an alternative approach. That is to add this issue to the agenda and to amend IFRIC 11 to clarify that both arrangements in question are within the scope of IFRS 2 and to specify how the employee services received by the subsidiary should be measured in its financial statement. The staff noted that this would be a more efficient approach as the amended Interpretation is expected to be effective significantly earlier than the amended IFRS 2. The IFRIC reached a consensus that the proposed amendments to IFRS 11 would be within the boundaries of an interpretation and decided to add this project to the agenda. In addition the IFRIC agreed to suggest amendments to IFRS 2 to the Board for inclusion in the annual improvement process. Subject to editorial comments the IFRIC agreed to the proposed amendments (omitted from observer notes) and asked the staff to bring back the revised wording for approval at a future meeting. New issue The IFRIC was also asked whether the following arrangement should be addressed in the proposed amendments to IFRIC 11: A subsidiary grants rights to its equity instruments to its employees, and The employees of the subsidiary are entitled to put the equity instruments of the subsidiary to the parent for cash at an amount that is based on the price of the equity instruments of the subsidiary. There seemed to be a consensus that such an arrangement should be treated as equity-settled in the financial statements of the subsidiary and therefore would be outside the scope of the proposed amendments to IFRIC 11. The IFRIC asked the staff to make clear in the revised wording that this type of arrangement is not addressed. Project removed from IFRIC agenda. IASB Agenda Project Page Created We have created an IASB Agenda Project Page to track the IASB's work on this project after it was handed over to the Board by IFRIC.