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IFRS 2 — Vesting and non vesting conditions

Date recorded:

The IFRIC was reminded that it received a request in May 2009 to clarify the definition of vesting conditions and non-vesting conditions. In particular, the questions the IFRIC was asked to clarify are:

  • Does there need to be a direct link between a performance target and the individual employee's service for a condition to be a performance condition?
  • When determining whether a target qualifies as a performance condition, does it matter whether the specified service period is shorter or longer than the period over which the performance target should be met?

Several IFRIC members noted that they do not agree with the staff's analysis on the questions, acknowledging that this is evidence of the divergence that exists in practice and the need for guidance on the appropriate accounting treatment.

One member questioned what the most expedient and appropriate way would be to address the issue: as an annual improvement or as an IFRIC Interpretation. The staff identified three alternatives for addressing the issue:

  • As an IFRIC Interpretation. A final Interpretation can most likely be issued within the next 12 months.
  • As an Annual Improvements Project. The most likely outcome of this alternative will be the issuing of an exposure draft in August 2010, with a final Standard being issued in April 2011.
  • A separate amendment to IFRS 2 Share-based Payment. This alternative will require permission from the Board for the IFRIC to carry out the amendment, with the likely timing similar to that of an IFRIC Interpretation.

One member then questioned why this matter should been taken on, while other IFRS 2 matters were rejected as IFRIC projects. Another IFRIC member responded that although he had a similar question, the reasoning is that this matter is arising from a recent amendment to IFRS 2 and that the IFRIC has to the opportunity to limit the divergence in practice before it becomes embedded.

It was suggested that if this matter is treated as a separate amendment to IFRS 2, the scope of the project should not be limited to this matter, but should also address other matters relating to IFRS 2. Some IFRIC members remarked that this route will not result in the matter being resolved quickly and that a comprehensive review of IFRS 2 should be left to the IASB.

The IFRIC agreed to add the matter to its agenda as an IFRIC Interpretation project.

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