Classification and measurement of share-based payment transactions: proposed amendments to IFRS 2

Comments from ACCA to the International Accounting Standards Board (IASB)
24 March 2015


General Comments

ACCA supports the proposals in the ED, both their content and the IASB’s view that they are primarily of the nature of clarifications. In two cases, we have suggested that the IASB considers additional related issues (see Questions 1 and 2 below).

The IASB has acknowledged the extent of the difficulties which have arisen in the application of IFRS 2, and we agree that further re-consideration of the Standard is needed. As explained in our response to Question 5 below, we believe that the review of IFRS 2 should have a greater depth and priority than appears to be intended at present.


Specific comments

Question 1
To clarify that the accounting for the effects of vesting and non-vesting conditions on the measurement of a cash-settled share-based payment should follow the approach used for equity-settled share-based payments.

ACCA supports this clarification, based on the experience of applying IFRS 2 in practice.

One possible exception may be in situations where there are complex valuation models. We would therefore also like to question whether the IASB has considered this situation, or would do so if a number of respondents to this ED raise specific concerns about it.


Question 2
An equity-settled share-based payment transaction remains entirely equity-settled, even if it includes a net settlement feature for the tax withholding obligation.

ACCA agrees with this proposal on the grounds of practicality, and because it will address some previous confusion which has arisen in applying IFRS 2. We agree that the feature involving the settlement of taxation in cash should not, by itself, ‘taint’ an equity-settled transaction.

In addition to the taxation deducted from the amount due to the employee, employers in some jurisdictions pay to the authorities an additional social security (or national insurance) levy. As this does not affect the amount due to the employee, we would query whether this levy can or should not be treated as cash-settled. We would welcome clarification from the IASB on this matter.


Question 3
Treatment of modifications that result in a cash-settled share-based payment transaction being reclassified as equity-settled:
The transaction is measured as the fair value, as at the modification date, of the equity instruments granted.
At the modification date, the liability for the original cash-settled share-based payment transaction is de-recognised, and the equity-settled share-based payment is recognised according to service rendered to that date
The difference between the liability de-recognised, and the amount now recognised in equity, is recorded in profit or loss.

ACCA supports the above proposals. The proposal in (c) is considered to be akin to the effect of a debt-equity swap, and generally consistent with the de-recognition of liabilities and the principles in IFRS 2. With regard to the appropriateness of IFRS 2’s principles themselves, this more fundamental question is dealt with under Question 5 below.


Question 4
The proposals will be applied prospectively (retrospective is permitted, if entities have the information to do so without the use of hindsight).

ACCA agrees with the prospective application of these changes, both for the reasons given in paras BC 22 and BC 23 of the ED, and in the light of the transitional provisions overall in IFRS 2.

Retrospective application is unlikely to be practicable, as we believe that hindsight would probably be needed.


Question 5
Any other comments on the proposals.

A broader review of IFRS 2

The IASB’s Work Plan notes that concerns were raised about the effectiveness of IFRS 2 during the 2011 Agenda Consultation, and that the Standard has given rise to a large number of interpretation requests compared to others.

As a result, it is currently proposed that an IASB project will begin with the issue of a Research Paper examining the application issues identified, and the views expressed so far. However, the basic principles of IFRS 2 will not be re-examined, and we would question this, and ask the IASB to consider prioritising this re-examination, for the following principal reasons: 

The number of interpretation requests submitted indicates that a Post-implementation Review of IFRS 2 is needed.

There were amendments to the definition of a vesting condition and a market condition as part of the Annual Improvements to IFRS 2010-2012 Cycle. We believe that it is advisable for the IASB to investigate whether issues still exist in this and any other key areas of the Standard, such as the cash / equity distinction. 

It may be appropriate for us to reiterate the above comments during the IASB’s Agenda Consultation exercise, due during 2015.