Share-based Payment

Date recorded:

The staff proposed a revised project plan, which the Board agreed to. The Board will have to conclude deliberations at the October meeting and should publish the final Standard during the first quarter of 2004. Any significant issues arising from FASB's deliberations would be considered by the Board at the December meeting.

Definition of grant date

The Board redeliberated the grant date definition and used the two following examples:

Example 1

On 1 March an entity, a wine producer, offers all of its employees the opportunity to participate in the grape harvest in late summer, for additional remuneration. The employees will be given 24 hours notice prior to the harvest date, and must then decide whether to accept or reject the offer. Each employee who accepts the offer and participates in the harvest will receive 30 fully vested shares. The entity's shares are priced at $10 per share on 1 March; $15 per share on 21 August, when the entity telephones each employee to (a) advise that the harvest will take place on the next day and (b) establish whether the employee accepts the offer to participate in the harvest; and $15.50 per share on 22 August, when the harvest takes place.

Example 2

Enterprise B hires a CEO. As part of the employment contract, Enterprise B agrees to give 100,000 fully vested stock options at the end of each of the next 5 annual periods (500,000 stock options in total); however, the exercise price of the stock options will be the average market price for the 12 months preceding each separate delivery of options . . . [B]oth Statement 123 and the Proposed IFRS define grant date as the date when both the employer and employee have 'a mutual understanding of the terms' of the award. The employer and the employee understand the formula that will establish the exercise price at the date of each individual grant; however, the exercise price is a key term of the options granted over the five-year period and is not known. Consequently, the day the agreement is signed is not the grant date for the award under both Statement 123 and the Proposed IFRS. [FASB Invitation to Comment, Accounting for Stock-Based Compensation, Paragraph A17; footnote reference omitted.]

The Board concluded that the grant date is when the employee accepts the commitment. The Board asked the staff to provide further narrative clarification of the definition.

Measurement of transactions with parties other than employees

The staff proposed a general principle of measuring goods and services directly and only if this cannot be reliably measured to use the fair value of the financial instrument. Both valuations to take place at grant date.

The following example was proposed for discussion:

The entity, a manufacturer of clocks and watches, enters into an agreement with an antique dealer, whereby the entity agrees to issue 10,000 shares to the antique dealer, conditional upon the antique dealer delivering a rare antique clock to the entity within the next five years. The antique dealer is not firmly committed to delivering the clock—if the clock is not delivered during the agreed period, the agreement will lapse, without the antique dealer incurring any penalty. No consideration was exchanged between the entity and the antique dealer upon entering into the agreement. Therefore, the only asset that the entity will receive in respect of the agreement is the antique clock, if and when the antique dealer delivers it. The entity is unable to estimate reliably the fair value of the clock, because such clocks hardly ever come onto the market. The entity must therefore recognise the asset received (the clock) by measuring the fair value of the shares issued. The entity's shares have a fair value of $15 per share at the agreement date. The antique dealer delivers the clock two years later, when the share price is:

  • Scenario A: $20 per share.
  • Scenario B: $10 per share.

One Board member emphasised that when the non-employee is not committed, the measurement should take place at date of commitment, usually the date of exchange. In addition, where the direct value cannot be determined, then the date of exchange value should be used.

This proposal was not accepted by the other Board members. The Board finally supported the staff proposal.

Liabilities and equity: ED 2 and IAS 32

The Board agreed the differences regarding the classification under IAS 32 and ED2 should be retained with one exception. The Board agreed that where the entity has the choice of settlement, the entity should use the IAS 32 proposed answer and not the ED2 answer.

One Board member expressed concerns regarding written puts and stated that in accordance with the IGC guidance for IAS 39 these could not be considered to be normal purchase and sale transactions and would thus be accounted for as derivatives under IAS 39 and not as share-based payments under ED2.

The Board acknowledged that this could be a problem, but it was agreed to consider this matter outside the meeting.

ESOPs, ESPPs, and broad-based employee share plans

The staff presented these plans to the Board and noted the divergence with US GAAP, which allows an exemption. The Board agreed not to provide an exemption or further guidance on these plans. They will however ask IFRIC to consider removing the exemption in SIC 12 for equity compensation plans and to determine whether further guidance for these plans is needed.

Valuation issues, including restricted stock and unlisted entities


The Board agreed to allow entities to use intrinsic value (which would be adjusted to exercise date) when the fair value of the goods or services or the financial instrument cannot be determined at grant date. This would apply to all entities whether listed or unlisted. Once this exemption is used for a particular transaction that transaction would need to be accounted for on this basis even if the fair value could subsequently be determined.

Restricted stock

The Board agreed that there should be a very small discount, if any, for issues such as restricted shares.

Option pricing models

The Board agreed to provide guidance on the circumstances in which particular types of option pricing models are more appropriate than others.

Transition and effective date

The Board agreed that the effective date of the standard should be 1 January 2005.

The Board agreed to retain the transition proposals of ED 2 but to allow retrospective application to the extent possible if the fair values were determined and publicly disclosed , and to require modifications for those transactions that were excluded as a result of the transition provisions after 7 November 2002 to be treated as modifications.

Correction list for hyphenation

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