The IFRIC considered a request to add to its agenda a project to clarify non-vesting conditions or non-market conditions when the conditions are not within the control of the entity or employee, based on paragraph IG24 of IFRS 2 Share-based Payment.

The issues on which clarification were sought on were:

• Issue 1: Is a condition a non-vesting condition because there is no service condition or because there is a service condition that is dependent on another condition that does not related to the performance of the entity?
• Issue 2: When a condition affects the timing of the vesting but not whether the share-based payment vests, should it be treated as a vesting or non-vesting condition?

On issue 1, the staff noted that par IG24 is not part of the mandatory guidance of IFRS 2 and should therefore be read in the context of IFRS 2. Staff considered that the examples in IG24 are not a de facto definition of non-vesting conditions and that non-vesting conditions are those that do not meet the definition of vesting conditions. The staff concluded that in the example given in the submission the conditions interact in such a way that combined they meet the definition of vesting conditions in IFRS 2 as the employee is likely to be motivated to stay with the entity during the estimated length of time to reach the set target.

With regards to issue 2, the request noted that there are two views on the accounting treatment for such conditions;

• View 2(a) – some constituents support a true up for changes in the expected service period and expected rate of forfeiture. This approach is consistent with IG Example 2 of IFRS 2.
• View 2(b) – Other constituents would account for the effect of a non-vesting condition that affects the timing of the vesting in the same way as a market-based besting condition with the vesting period estimated on day 1 and not trued up.

The staff concluded that the condition that affects the timing of the vesting does not meet the definition of vesting conditions and as such do not determine the vesting period and considers both views inconsistent with IFRS 2.

The staff recommend to the IFRIC not to add the item to its agenda as IFRS 2 provides sufficient guidance on the definition of vesting conditions and therefore non-vesting conditions and the treatment of non-vesting conditions. As these issues were considered to be uncommon in practice and diversity in practice is not anticipated, the staff considered the issues too narrow to develop an interpretation.

One IFRIC member felt that the scope of the question is much broader than just the facts mentioned in the staff paper and that the real question to consider is how the interaction between conditions should be treated and what the accounting implications thereof were. Most of the IFRIC members disagreed with the staff's conclusion and indicated that they can't see how the staff could conclude that it was just a vesting condition. Members also disagreed that the issues were uncommon in practice.

It was agreed that the staff should research the question further before an agenda decision could be reached. The Chairman asked all members to assist staff with the research through their experience and providing real-life examples. The outcome of the research will determine whether the IFRIC adds the item to its agenda or refer it to the Board as an amendment to IFRS 2. No tentative agenda decisions were reached.