Date recorded:

IFRS 2 Share-based Payment - Exposure Draft IFRS 2 Share-based Payment: Vesting Conditions and Cancellations.

Vesting conditions and cancellations

(a) Definition of 'vesting condition'

The Board discussed how best to respond to constituent requests that the definitions of 'vesting conditions' and 'performance conditions' should be clarified. The Board discussed a staff proposal (see paragraph 6(a) in Observer Note 19). However, the Board seemed to agree that the definition as drafted was trying to do too much and should be broken down to state that

  • Vesting conditions are those conditions that entitle the counterparty to receive cash, other assets or equity instruments of the entity under the terms of a share-based payment arrangement. Vesting conditions can be service conditions and [non-service] conditions (see below)
  • Service conditions require the other party to complete a specified period of service.
  • [One possibility] All other conditions are non-service conditions.
  • [Another possibility] All other conditions are performance conditions (as currently defined).

The staff will think about this idea, although it did have a lot of general support around the table.

(b) Definition of 'performance condition'

Board members expressed concern that the current definition was circular, and preferred to be explicit that 'performance conditions' was the residual category (i.e. 'non-service' conditions). This was not a definition as such but an explanation of the two broad categories of conditions in a share-based payment arrangement. It was noted that the 'non-service' conditions were also distinguished from service conditions because they were always entity-specific conditions.

(c) Treatment of cancellations

The Board agreed not to provide a definition of 'cancellation' in IFRS 2. What constitutes a cancellation would be determined by the terms and conditions of the share-based payment agreement. The Board reaffirmed its previous decision that it does not matter which party to a share-based payment arrangement cancels the arrangement, either would be treated as a cancellation. However, the Board agreed with the staff that, with respect to Save As You Earn schemes, the effect of the cancellation would be the repayment of the savings component and the reversal of the compensation element. The staff suggested that the savings component was the far larger component, which should mitigate the effect of the reversal. The Board agreed and will include an example in the Implementation Guidance (along the lines of the example in paragraph 87 of Observer Note 19).

(d) Resolution of existing differences with FAS 123(R)

The Board agreed not to attempt to resolve existing differences with FAS 123(R) as this was beyond the scope of this amendment and do not arise because of the Board's conclusions in this project.

(e) Effective date

The Board agreed that the amendments to IFRS 2 would be effective for financial years beginning on or after 1 January 2008.

(f) Re-exposure

The Board agreed that the proposals did not need re-exposure as there had been no fundamental change in the proposed amendments from those exposed.

The Board concluded its redeliberations and directed the staff to proceed to drafting a pre-ballot draft of the amendments. No Board members indicated an intention to dissent from the Standard.

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