Annual improvements: Cycle 2010-2012 (IASB only)

Date recorded:

The IASB plans to publish the improvements in the fourth quarter of 2013.

The Board discussed only one issue: IFRS 2 Share-based Payment – length of the performance target with respect to the period of service. The objective of the discussion was to address a sweep issue identified by the Staff regarding the duration of the period of assessment of a performance target with respect to the period of service within the proposed definition of ‘performance condition’.

The ED of Annual Improvements to IFRSs 2010-2012 cycle published in May 2012 included the proposal to clarify the definition of vesting conditions in Appendix A of IFRS 2 by separately defining a ‘performance condition’ and a ‘service condition’.

During its deliberations at the February 2013 meeting, the IASB confirmed that the duration of the performance condition needed to be wholly within the period of the related service requirement. This meant that the period of assessment of the performance target could not start before the start of the service period and could not end after the service period.

However, the Board has subsequently received some feedback on the potential unintentional consequences of the above conclusion. The commentators claimed that it was common for the period of the assessment of a performance target to start before the service period, so the starting assessment period of the performance target should not be restricted.

The Staff considered the feedback and agreed with the commentators and therefore the Staff proposed to clarify that the start of the assessment period should not be restricted. (The performance target still cannot end after the service period). 

The Board discussed this new conclusion at length as one of the Board members strongly believed that it might open doors for some abuse and structuring opportunities (i.e. an entity might set up performance targets that in substance have already been achieved). Other Board members responded that this was more of a governance issue, but there were many arrangements in practice when the assessment started before the service period.

As a result of the discussion, the Staff suggested to clarify the wording of the new conclusion by adding a phrase along the following lines: “provided that substantially all services are received post the grant date”.  

The Board agreed with the Staff proposal, including the further proposed clarification about substantive services after the grant date.

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