Addendum
Classification and Measurement of Share-based
Payment Transactions (Amendments to FRS 2)
This Addendum sets out the amendments to FRS 2 Share-based Payment.
An entity shall apply the amendments in this Addendum for annual periods
beginning on or after 1 January 2018. Earlier application is permitted.
Paragraphs 19, 30–31, 33, 52 and 63 are amended, and paragraphs
33A–33H, 59A–59B, 63D and 63DAA are added. Headings before
paragraphs 33A and 33E are added. Deleted text is struck through and new
text is underlined. New paragraph or text added by MASB is underlined
and shaded. Paragraphs 32 and 34 have not been amended, but are included
for ease of reference.
The following paragraphs were added/ amended in 2011-2014 and are
listed here for ease of reference:
Paragraph(s) Document Title
63A FRS 10 Consolidated Financial Statements
FRS 11 Joint Arrangements
19, 63B Annual Improvements to FRSs 2010–2012 Cycle
63C FRS 9 Financial Instruments (IFRS 9 as issued by
IASB in July 2014)
Treatment of vesting conditions
19 A grant of equity instruments might be conditional upon satisfying
specified vesting conditions. For example, a grant of shares or
share options to an employee is typically conditional on the
employee remaining in the entity’s employ for a specified period
of time. There might be performance conditions that must be
satisfied, such as the entity achieving a specified growth in profit
or a specified increase in the entity’s share price. Vesting
conditions, other than market conditions, shall not be taken into
account when estimating the fair value of the shares or share
options at the measurement date. Instead, vesting conditions, other
than market conditions, shall be taken into account by adjusting
the number of equity instruments included in the measurement of
the transaction amount so that, ultimately, the amount recognised
for goods or services received as consideration for the equity
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instruments granted shall be based on the number of equity
instruments that eventually vest. Hence, on a cumulative basis, no
amount is recognised for goods or services received if the equity
instruments granted do not vest because of failure to satisfy a
vesting condition, other than a market condition, for example,eg
the counterparty fails to complete a specified service period, or a
performance condition is not satisfied, subject to the requirements
of paragraph 21.
Cash-settled share-based payment transactions
30 For cash-settled share-based payment transactions, the entity
shall measure the goods or services acquired and the liability
incurred at the fair value of the liability, subject to the
requirements of paragraphs 31–33D. Until the liability is
settled, the entity shall remeasure the fair value of the liability
at the end of each reporting period and at the date of
settlement, with any changes in fair value recognised in profit
or loss for the period.
31 For example, an entity might grant share appreciation rights to
employees as part of their remuneration package, whereby the
employees will become entitled to a future cash payment (rather
than an equity instrument), based on the increase in the entity’s
share price from a specified level over a specified period of time.
Or Alternatively, an entity might grant to its employees a right to
receive a future cash payment by granting to them a right to shares
(including shares to be issued upon the exercise of share options)
that are redeemable, either mandatorily (egfor example, upon
cessation of employment) or at the employee’s option. These
arrangements are examples of cash-settled share-based payment
transactions. Share appreciation rights are used to illustrate some
of the requirements in paragraphs 32–33D; however, the
requirements in those paragraphs apply to all cash-settled
share-based payment transactions.
32 The entity shall recognise the services received, and a liability to
pay for those services, as the employees render service. For
example, some share appreciation rights vest immediately, and the
employees are therefore not required to complete a specified
period of service to become entitled to the cash payment. In the
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absence of evidence to the contrary, the entity shall presume that
the services rendered by the employees in exchange for the share
appreciation rights have been received. Thus, the entity shall
recognise immediately the services received and a liability to pay
for them. If the share appreciation rights do not vest until the
employees have completed a specified period of service, the entity
shall recognise the services received, and a liability to pay for
them, as the employees render service during that period.
33 The liability shall be measured, initially and at the end of each
reporting period until settled, at the fair value of the share
appreciation rights, by applying an option pricing model, taking
into account the terms and conditions on which the share
appreciation rights were granted, and the extent to which the
employees have rendered service to date.–subject to the
requirements of paragraphs 33A–33D. An entity might modify the
terms and conditions on which a cash-settled share-based payment
is granted. Guidance for a modification of a share-based payment
transaction that changes its classification from cash-settled to
equity-settled is given in paragraphs B44A–B44C in Appendix B.
Treatment of vesting and non-vesting conditions
33A A cash-settled share-based payment transaction might be
conditional upon satisfying specified vesting conditions. There
might be performance conditions that must be satisfied, such as the
entity achieving a specified growth in profit or a specified increase
in the entity’s share price. Vesting conditions, other than market
conditions, shall not be taken into account when estimating the fair
value of the cash-settled share-based payment at the measurement
date. Instead, vesting conditions, other than market conditions,
shall be taken into account by adjusting the number of awards
included in the measurement of the liability arising from the
transaction.
33B To apply the requirements in paragraph 33A, the entity shall
recognise an amount for the goods or services received during the
vesting period. That amount shall be based on the best available
estimate of the number of awards that are expected to vest. The
entity shall revise that estimate, if necessary, if subsequent
information indicates that the number of awards that are expected
to vest differs from previous estimates. On the vesting date, the
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entity shall revise the estimate to equal the number of awards that
ultimately vested.
33C Market conditions, such as a target share price upon which vesting
(or exercisability) is conditioned, as well as non-vesting
conditions, shall be taken into account when estimating the fair
value of the cash-settled share-based payment granted and when
remeasuring the fair value at the end of each reporting period and
at the date of settlement.
33D As a result of applying paragraphs 30–33C, the cumulative amount
ultimately recognised for goods or services received as
consideration for the cash-settled share-based payment is equal to
the cash that is paid.
Share-based payment transactions with a net settlement
feature for withholding tax obligations
33E Tax laws or regulations may oblige an entity to withhold an
amount for an employee’s tax obligation associated with a share-
based payment and transfer that amount, normally in cash, to the
tax authority on the employee’s behalf. To fulfil this obligation,
the terms of the share-based payment arrangement may permit or
require the entity to withhold the number of equity instruments
equal to the monetary value of the employee’s tax obligation from
the total number of equity instruments that otherwise would have
been issued to the employee upon exercise (or vesting) of the
share-based payment (ie the share-based payment arrangement has
a ‘net settlement feature’).
33F As an exception to the requirements in paragraph 34, the
transaction described in paragraph 33E shall be classified in its
entirety as an equity-settled share-based payment transaction if it
would have been so classified in the absence of the net settlement
feature.
33G The entity applies paragraph 29 of this Standard to account for the
withholding of shares to fund the payment to the tax authority in
respect of the employee’s tax obligation associated with the
share-based payment. Therefore, the payment made shall be
accounted for as a deduction from equity for the shares withheld,
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except to the extent that the payment exceeds the fair value at the
net settlement date of the equity instruments withheld.
33H The exception in paragraph 33F does not apply to:
(a) a share-based payment arrangement with a net settlement
feature for which there is no obligation on the entity under tax
laws or regulations to withhold an amount for an employee’s
tax obligation associated with that share-based payment; or
(b) any equity instruments that the entity withholds in excess of
the employee’s tax obligation associated with the share-based
payment (ie the entity withheld an amount of shares that
exceeds the monetary value of the employee’s tax obligation).
Such excess shares withheld shall be accounted for as a cash-
settled share-based payment when this amount is paid in cash
(or other assets) to the employee.
34 For share-based payment transactions in which the terms of
the arrangement provide either the entity or the counterparty
with the choice of whether the entity settles the transaction in
cash (or other assets) or by issuing equity instruments, the
entity shall account for that transaction, or the components of
that transaction, as a cash-settled share-based payment
transaction if, and to the extent that, the entity has incurred a
liability to settle in cash or other assets, or as an equity-settled
share-based payment transaction if, and to the extent that, no
such liability has been incurred.
Disclosures
…
52 If the information required to be disclosed by this FRS Standard
does not satisfy the principles in paragraphs 44, 46 and 50, the
entity shall disclose such additional information as is necessary to
satisfy them. For example, if an entity has classified any
share-based payment transactions as equity-settled in accordance
with paragraph 33F, the entity shall disclose an estimate of the
amount that it expects to transfer to the tax authority to settle the
employee’s tax obligation when it is necessary to inform users
about the future cash flow effects associated with the share-based
payment arrangement.
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Transitional provisions
…
59A An entity shall apply the amendments in paragraphs 30–31,
33–33H and B44A–B44C as set out below. Prior periods shall not
be restated.
(a) The amendments in paragraphs B44A–B44C apply only to
modifications that occur on or after the date that an entity first
applies the amendments.
(b) The amendments in paragraphs 30–31 and 33–33D apply to
share-based payment transactions that are unvested at the date
that an entity first applies the amendments and to share-based
payment transactions with a grant date on or after the date that
an entity first applies the amendments. For unvested
share-based payment transactions granted prior to the date that
an entity first applies the amendments, an entity shall
remeasure the liability at that date and recognise the effect of
the remeasurement in opening retained earnings (or other
component of equity, as appropriate) of the reporting period in
which the amendments are first applied.
(c) The amendments in paragraphs 33E–33H and the amendment
to paragraph 52 apply to share-based payment transactions
that are unvested (or vested but unexercised), at the date that
an entity first applies the amendments and to share-based
payment transactions with a grant date on or after the date that
an entity first applies the amendments. For unvested (or
vested but unexercised) share-based payment transactions (or
components thereof) that were previously classified as
cash-settled share-based payments but now are classified as
equity-settled in accordance with the amendments, an entity
shall reclassify the carrying value of the share-based payment
liability to equity at the date that it first applies the
amendments.
59B Notwithstanding the requirements in paragraph 59A, an entity
may apply the amendments in paragraph 63D retrospectively,
subject to the transitional provisions in paragraphs 53–59 of this
Standard, in accordance with FRS 108 Accounting Policies,
Changes in Accounting Estimates and Errors if and only if it
is possible without hindsight. If an entity elects retrospective
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application, it must do so for all of the amendments made
by Classification and Measurement of Share-based Payment
Transactions (Amendments to FRS 2).
Effective date
…
63 An entity shall apply the following amendments made by Group
Cash-settled Share-based Payment Transactions issued in July
2010 retrospectively, subject to the transitional provisions in
paragraphs 53–59, in accordance with FRS 108 Accounting
Policies, Changes in Accounting Estimates and Errors for annual
periods beginning on or after 1 January 2011:
(a) ...
...
63D Classification and Measurement of Share-based Payment
Transactions (Amendments to FRS 2), issued in August 2016,
amended paragraphs 19, 30–31, 33, 52 and 63 and added
paragraphs 33A–33H, 59A–59B, 63D and B44A–B44C and their
related headings. An entity shall apply those amendments for
annual periods beginning on or after 1 January 2018. Earlier
application is permitted. If an entity applies the amendments for an
earlier period, it shall disclose that fact.
63DAA An entity that has in the alternative applied the Financial
Reporting Standards Framework shall apply the MFRS
Framework on 1 January 2018*. Such an entity shall apply
Amendments to MFRS 2, instead of this Amendment, on or after
1 January 2018.
In Appendix B, paragraphs B44A–B44C and their related heading are
added. New text is underlined.
*
See MASB announcement on 28 October 2015.
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Accounting for a modification of a share-based
payment transaction that changes its classification
from cash-settled to equity-settled
B44A If the terms and conditions of a cash-settled share-based payment
transaction are modified with the result that it becomes an
equity-settled share-based payment transaction, the transaction is
accounted for as such from the date of the modification.
Specifically:
(a) The equity-settled share-based payment transaction is
measured by reference to the fair value of the equity
instruments granted at the modification date. The
equity-settled share-based payment transaction is recognised
in equity on the modification date to the extent to which
goods or services have been received.
(b) The liability for the cash-settled share-based payment
transaction as at the modification date is derecognised on that
date.
(c) Any difference between the carrying amount of the liability
derecognised and the amount of equity recognised on the
modification date is recognised immediately in profit or loss.
B44B If, as a result of the modification, the vesting period is extended or
shortened, the application of the requirements in paragraph B44A
reflect the modified vesting period. The requirements in paragraph
B44A apply even if the modification occurs after the vesting
period.
B44C A cash-settled share-based payment transaction may be cancelled
or settled (other than a transaction cancelled by forfeiture when the
vesting conditions are not satisfied). If equity instruments are
granted and, on that grant date, the entity identifies them as a
replacement for the cancelled cash-settled share-based payment,
the entity shall apply paragraphs B44A and B44B.
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