IFRS 3 — Continuing employment

Date recorded:


In January 2012, the IFRS Interpretations Committee received a request for guidance on the accounting, in accordance with IFRS 3 Business Combinations, for contingent payments to selling shareholders in circumstances in which those selling shareholders become, or continue as, employees.

The submitter asked the Interpretations Committee to clarify whether paragraph B55(a) of IFRS 3 is conclusive in determining that an arrangement in which payments to an employee that are forfeited upon termination of employment is remuneration for post-combination services and not part of the consideration for an acquisition. The question arose because the submitter asserted that paragraph B55 introduces subparagraphs (a) to (h) as indicators, but paragraph B55(a) uses conclusive language stating that the arrangement described is remuneration for post-combination services.

In the September 2012 meeting, the Interpretations Committee tentatively decided not to add this issue to its agenda at this time to have the opportunity to work on this issue jointly with the Emerging Issues Task Force (EITF), because working on this issue alone raises the risk of creating divergence with US GAAP and the FASB want to wait until their post-implementation review on business combinations was complete before looking at this issue.

Four comment letters were received in relation to the tentative agenda decision.  One of the respondents disagreed with the IFRIC’s observation that an arrangement in which contingent payments are automatically forfeited if employment terminates should lead to a conclusion that the arrangement is compensation for post-combination services because the tentative agenda decision did not provide a justification for this observation.  The respondent did not agree that the IFRIC’s justification for their tentative agenda decision was appropriate.  This respondent proposed an amendment to IFRS 3.

The other three respondents agreed with the decision not to add this issue to the Interpretation Committee’s agenda.  One of the respondents requested wording changes which the Staff agreed to and made.

The Staff recommended to the Interpretations Committee that they should finalise their decision not to add this issue to their agenda.  The Staff also proposed wording changes in response to the concerns of the respondents.

The Staff asked the Interpretations Committee whether they agreed with their recommendation and asked whether they had any comments on the proposed wording.

One of the Committee members disagreed with the Staff proposal as she said that it was internally inconsistent with the conclusion in the Staff paper.  This Committee member noted that the IFRIC should not proceed with this issue as it was not urgent and to look at this issue as part of the post-implementation review of IFRS 3.  Another member agreed with the Staff recommendation and did not see that it was inconsistent.

The majority of IFRIC members tentatively agreed with the Staff’s proposal with one member objecting to the wording in paragraph 2 of the Staff’s paper but tentatively agreeing that the issue should not be added to the Committee’s agenda.

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