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FRC consults on proposals to clarify and simplify the accounting for share-based payment transactions with cash alternatives under FRS 102

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20 Apr 2015

The Financial Reporting Council (FRC) has today published Financial Reporting Exposure Draft (FRED) 61 ‘Draft amendments to FRS 102 – Share-based payment transactions with cash alternatives’ which proposes a narrow scope amendment to clarify and simplify the accounting for share and share option awards where a cash settlement alternative exists.

The accounting requirements of FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland in relation to share-based payment transactions where the entity can choose to settle in cash or equity instruments currently differ from those under International Financial Reporting Standard (IFRS) 2 Share-based Payment and old UK GAAP Financial Reporting Standard (FRS) 20 Share-based Payment.  Entities and their advisors have informed the FRC that the requirements under FRS 102 are more “onerous to apply” and, as a result, might result in “inappropriate accounting outcomes”.

As a result of this feedback, FRED 61 seeks to amend paragraph 26.15 of FRS 102 to:

align the requirements in FRS 102 with full IFRS and previous UK and Irish GAAP in cases where the entity can choose to settle in cash or equity;

retain the current requirements of FRS 102 to recognise a liability where the recipient can require settlement in cash; and

generalise the requirements to include those cases where the settlement method is dependent on an external event.

The FRC highlights that, as a result of these amendments, “entities would generally be able to continue with their existing accounting practices applied under previous UK and Irish GAAP which should reduce transition and application costs of FRS 102”.

The amendments are proposed to be effective from 1 January 2015.

Comments on FRED 61 are invited until 1 June 2015.

The press release and FRED 61 are available on the FRC website.

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