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IAS Plus newsletter — Special Global Edition — IFRS 2 Share-based Payment

Published on: 19 Feb 2004

The International Accounting Standards Board (IASB) has issued IFRS 2 Share-based Payment that will require share-based payments to be recognised as an expense.  This is the first major standard which the IASB itself has developed and is designed to take a leadership position in what has historically been a difficult area for standard setters.  Several standard-setting bodies around the world are expected to follow the IASB's lead.  IFRS 2 is based on its preceding Exposure Draft, ED 2, but there have been important changes especially in the measurement area.

The amount charged as an expense will be measured at the fair value of the goods or services received unless, for equity-settled transactions, that fair value cannot be estimated reliably.  In these cases, which are deemed to include employee share options, the fair value of the equity instruments granted should be measured.

IFRS 2 defines a share-based payment as a transaction in which the entity receives or acquires goods or services either as consideration for its equity instruments or by incurring liabilities for amounts based on the price of the entity's shares or other equity instruments of the entity.  The accounting requirements for the share-based payment depend on how the transaction will be settled, i.e. by the issuance of a) equity, b) cash, or c) equity or cash.

IFRS 2 contains considerable guidance dealing with application and implementation.  However, as there is no single model for estimating the fair value of share-based payment or consensus for quantifying unique features of share-based payments in valuation models, considerable judgement will still be an essential ingredient in the valuation process.

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