Home   Site Map   Standards   Interpretations   Agenda   Structure   Newsletter   Resources   Jurisdictions   Links   Search

IFRS 2: Scope of IFRS 2

Go To List of IFRIC Issues Issue Description: Which equity instruments are included in the scope of IFRS 2 Share-based Payment. Discussion at the December 2004 IFRIC Meeting The IFRIC discussed a draft interpretation which included a rebuttable presumption that where en entity issues equity instruments for less than their fair value, additional goods or services are received as well as the cash or other consideration. It was noted that the interpretation as currently drafted would require an entity to determine the fair value of equity instruments issued as consideration for goods or services, in order to determine whether they were within the scope of IFRS 2. However having determined they were within the scope, the expense should be measured at the fair value of goods or services received and therefore the determination of the fair value of the equity instruments would not be needed to complete the accounting. Therefore the interpretation as drafted would require entities that would otherwise not be required to determine the fair value of the equity instruments issued to do so. The IFRIC agreed to proceed with a draft interpretation which contained a presumption that when you are dealing with non-employees you are able to identify goods and services received. Where the fair value of those goods and services appears consistent with the fair value of the equity instruments issued, the share-based payment is measured at the fair value of the goods and services received. However, if goods or services are not readily identifiable, or their value does not seem consistent with the fair value of the equity instruments issued an entity must consider what other goods or services they received in exchange for the instruments. The use of the term 'consistent' is designed to ensure entities that appear to be making a simple transaction of goods for equity instruments worth more or less the same amount are not forced into an exercise of fair valuing the equity instruments issued. The IFRIC discussed briefly whether there was any inconsistency between this conclusion and paragraph 31 of IAS 32 in respect of compound financial instruments. After a brief discussion it was determined that no inconsistency existed. The IFRIC discussed whether there were any implications of its decisions for group transactions. It was agreed that IFRS 2 could only be relevant in a situation where there is a transaction in which the fair value of the investment acquired is less than the fair value of shares issued, and the company whose shares are being exchanged is not an associate, joint venture or subsidiary of the company receiving its shares. Even in this scenario this would be a transaction within equity amongst the group companies. The IFRIC will consider a re-drafted interpretation at its February meeting. Discussion at the IFRIC Meeting February 2005 The IFRIC considered a revised draft interpretation on the scope of IFRS 2. The IFRIC agreed that this interpretation should be redrafted to focus on the basic point that you do not have to be able to identify the goods or services to be within IFRS 2, and to clarify the indicators that a share-based payment might exist. IFRIC D16 Issued May 2005 On 19 May 2005, the IFRIC published for comment IFRIC D16 Scope of IFRS 2. IFRIC D16 was developed in response to requests for clarification of the scope of IFRS 2 Share-based Payment. The proposed Interpretation clarifies that transactions within the scope of the IFRS include those in which the entity cannot specifically identify some or all of the goods or services received. Discussion at the IFRIC Meeting December 2005 At the previous meeting the staff presented a comment analysis of the responses to D16, and the IFRIC decided that the draft should be revised to clarify certain issues. At this meeting, the staff presented the revised draft, including revisions for the following areas: The scope of the draft Interpretation must be consistent with the scope of IFRS 2, and the types of 'non-reciprocal' arrangements that fall within/outside of the scope of the Interpretation. The draft Interpretation is a clarification of the scope of IFRS 2. The rebuttable presumption in paragraph 13 of IFRS 2 does not apply to unidentifiable goods or services received. Entities would not need to compare the fair value of the equity instrument granted with the fair value of identifiable goods or services received for all non-employee goods or services received. The measurement date for the unidentifiable goods or services received shall be the grant date of the equity instrument. The measurement date for the identifiable consideration will be in accordance with IFRS 2. IFRIC agreed to include as an example, an illustration of how share-based payment transactions involving close family relationships would be dealt with under the draft Interpretation depending on whether goods or services had been provided to the entity. The words "appears to be less than fair value" were viewed by some as problematic for practical reasons, and the IFRIC agreed to explain the use of those words in the basis for conclusions. After discussing the above and some drafting issues, none of the IFRIC members indicated an intention to dissent to issuance of the Interpretation. January 2006: IFRIC 8 Issued On 12 January 2006, the IFRIC issued Interpretation 8 Scope of IFRS 2.