IFRS 3 — Unreplaced and voluntary replaced share based payment awards

Date recorded:

The IFRIC received a request to clarify how to account for unreplaced and voluntarily replaced share-based payment awards in a business combination.

With regards to unreplaced awards, constituents asked:

  • whether unreplaced awards are part of the consideration transferred or part of the NCI
  • whether unreplaced awards should be remeasured at the acquisition date and on what measurement basis
  • whether an entity should allocate some of all of the value of the unreplaced awards to post-combination expense.

Classification as non-controlling interest

IFRIC agreed that the unreplaced awards of the acquiree meet the definition of non-controlling interest.

Measurement date and basis

IFRIC agreed that unreplaced awards should be measured at their market-based measure at the acquisition date.

Apportionment of consideration transferred and post-combination expense

IFRIC agreed that the acquirer is bound by the terms of the unreplaced awards and that a portion of market-based measure should be allocated to NCI. Only that portion of market-based measure that relates to undelivered employee services should be included in post-combination expense.

Share-based payment awards that the acquirer chooses to replace

IFRIC agreed that when an acquirer voluntarily issues replacement awards to unexpired share-based payments, the replacement awards represent consideration transferred as it is an issue of equity instruments of the acquirer in exchange for unexpired awards of the acquiree. This situation is no different from honouring a change of control provision in the existing terms of the award.

One IFRIC member was confused as to how the staff reached its conclusion as IFRS 3 states that there is difference between the accounting for those awards that the acquirer voluntarily replace and those that it is obliged to replace. The staff considered this distinction to apply only to those share-based payment wards that would have expired and are voluntarily replaced by the acquirer.

The IFRIC reached a tentative decision to refer to matter to the Board as a complete rewriting of B56 of IFRS 3 is required. Concerns were raised that IFRS 3 is a converged standard and that consultations need to happen with the FASB in order for the wording to be changed. The Chairman remarked that just as the IFRIC had to convince itself of the significance of the matter, the FASB will have to convince itself.

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