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Amendment in IFRS 2 Share based Payment

Amendment in IFRS 2 Share based Payment

Amendment in IFRS 2 Share based Payment: Amendments to IFRS 2 clarify the accounting for certain types of arrangements Highlights − Measurement of cash-settled awards – Use same approach as equity-settled awards − Classification of awards settled net of tax withholding – Account for as equity settled if certain conditions are met − Modification of awards from cash-settled to equity-settled – Specific approach to follow − Next steps, effective date and transition

Amendment in IFRS 2 Share based Payment

Amendment in IFRS 2 Share based Payment

Amendment in IFRS 2 Share based Payment

In February 2004 the International Accounting Standards Board (the Board) issued IFRS 2 Share-based Payment. The Board amended IFRS 2 to clarify its scope in January 2008 and to incorporate the guidance contained in two related Interpretations (IFRIC 8 Scope of IFRS 2 and IFRIC 11 IFRS 2—Group and Treasury Share Transactions) in June 2009.
Other Standards have made minor consequential amendments to IFRS 2. They include IFRS 10 Consolidated Financial Statements (issued May 2011), IFRS 11 Joint Arrangements (issued May 2011), IFRS 13 Fair Value Measurement (issued May 2011), Annual Improvements to IFRSs 2010–2012 Cycle (issued December 2013) and IFRS 9 Financial Instruments (issued July 2014).

Amendment in IFRS 2 Share based Payment

Introduction
Reasons for issuing the IFRS
Entities often grant shares or share options to employees or other parties. Share plans and share option plans are a common feature of employee remuneration, directors, senior executives and many other employees. Some entities issue shares or share options to pay suppliers, such as suppliers of professional services.

Amendment in IFRS 2 Share based Payment
Until this IFRS was issued, there was no IFRS covering the recognition and measurement of these transactions. Concerns were raised about this gap in IFRSs, given the increasing prevalence of share-based payment transactions in many countries.

Amendment in IFRS 2 Share based Payment
Reasons for amending IFRS 2 in June 2009
In June 2009 the International Accounting Standards Board amended IFRS 2 to clarify its scope and the accounting for group cash-settled share-based payment transactions in the separate or individual financial statements of the entity receiving the goods or services when that entity has no obligation to settle the share-based payment transaction. The amendments also incorporate the

Amendment in IFRS 2 Share based Payment
guidance contained in the following Interpretations:
● IFRIC 8 Scope of IFRS 2
● IFRIC 11 IFRS 2—Group and Treasury Share Transactions.
As a result, the Board withdrew IFRIC 8 and IFRIC 11.

Amendment in IFRS 2 Share based Payment
Main features of the IFRS
The IFRS requires an entity to recognise share-based payment transactions in its financial statements, including transactions with employees or other parties to be settled in cash, other assets, or equity instruments of the entity. There are no exceptions to the IFRS, other than for transactions to which other Standards apply.

Amendment in IFRS 2 Share based Payment
The IFRS sets out measurement principles and specific requirements for three types of share-based payment transactions:
(a) equity-settled share-based payment transactions, in which the entity receives goods or services as consideration for equity instruments of the entity (including shares or share options).
(b) cash-settled share-based payment transactions, in which the entity acquires goods or services by incurring liabilities to the supplier of those goods or services for amounts that are based on the price (or value) of the entity’s shares or other equity instruments of the entity.

(c) transactions in which the entity receives or acquires goods or services and the terms of the arrangement provide either the entity or the supplier of those goods or services with a choice of whether the entity settles the transaction in cash or by issuing equity instruments.

Amendment in IFRS 2 Share based Payment
For equity-settled share-based payment transactions, the IFRS requires an entity to measure the goods or services received, and the corresponding increase in equity, directly, at the fair value of the goods or services received, unless that fair
value cannot be estimated reliably.

Amendment in IFRS 2 Share based Payment

If the entity cannot estimate reliably the fair value of the goods or services received, the entity is required to measure their
value, and the corresponding increase in equity, indirectly, by reference to the fair value of the equity instruments granted. Furthermore:
(a) for transactions with employees and others providing similar services, the entity is required to measure the fair value of the equity instruments granted, because it is typically not possible to estimate reliably the fair value of employee services received. The fair value of the equity instruments granted is measured at grant date.

(b) for transactions with parties other than employees (and those providing similar services), there is a rebut table presumption that the fair value of the goods or services received can be estimated reliably. That fair value is
measured at the date the entity obtains the goods or the counter party renders service. In rare cases, if the presumption is rebutted, the transaction is measured by reference to the fair value of the equity instruments granted, measured at the date the entity obtains the goods or the counter party renders service.

(c) for goods or services measured by reference to the fair value of the equity instruments granted, the IFRS specifies that all non-vesting conditions are taken into account in the estimate of the fair value of the equity instruments. However, vesting conditions that are not market conditions are not taken into account when estimating the fair value of the shares or options at the relevant measurement date (as specified above).

Instead, vesting conditions are 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 instruments granted
is 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).

(d) the IFRS requires the fair value of equity instruments granted to be based on market prices, if available, and to take into account the terms and conditions upon which those equity instruments were granted. In the absence of market prices, fair value is estimated, using a valuation technique to estimate what the price of those equity instruments would have been on the measurement date in an arm’s length transaction between knowledgeable, willing parties.

(e) the IFRS also sets out requirements if the terms and conditions of an option or share grant are modified (eg an option is repriced) or if a grant is cancelled, repurchased or replaced with another grant of equity instruments. For example, irrespective of any modification, cancellation or settlement of a grant of equity instruments to employees, the IFRS generally requires the entity to recognise, as a minimum, the services received measured at the grant date fair value of the equity instruments granted.
Amendment in IFRS 2 Share based Payment

For cash-settled share-based payment transactions, the IFRS requires an entity to measure the goods or services acquired and the liability incurred at the fair value of the liability. Until the liability is settled, the entity is required to remeasure the fair value of the liability at the end of each reporting period and at the date of settlement, with any changes in value recognised in profit or loss for the period.

Amendment in IFRS 2 Share based Payment
For share-based payment transactions in which the terms of the arrangement provide either the entity or the supplier of goods or services with a choice of whether the entity settles the transaction in cash or by issuing equity
instruments, the entity is required to 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.

Amendment in IFRS 2 Share based Payment

IFRS prescribes various disclosure requirements to enable users of financial
statements to understand:
(a) the nature and extent of share-based payment arrangements that existed during the period.
(b) how the fair value of the goods or services received, or the fair value of the equity instruments granted, during the period was determined.
(c) the effect of share-based payment transactions on the entity’s profit or loss for the period and on its financial position.

Amendment in IFRS 2 Share based Payment

Objective
The objective of this IFRS is to specify the financial reporting by an entity when it undertakes a share-based payment transaction. In particular, it requires an entity to reflect in its profit or loss and financial position the effects of share-based
payment transactions, including expenses associated with transactions in which share options are granted to employees.

Amendment in IFRS 2 Share based Payment

Scope
An entity shall apply this IFRS in accounting for all share-based payment transactions, whether or not the entity can identify specifically some or all of the goods or services received, including:
(a) equity-settled share-based payment transactions,
(b) cash-settled share-based payment transactions, and
(c) transactions in which the entity receives or acquires goods or servicesand the terms of the arrangement provide either the entity or the supplier of those goods or services with a choice of whether the entity settles the transaction in cash (or other assets) or by issuing equity instruments. In the absence of specifically identifiable goods or services, other circumstances may indicate that goods or services have been (or will be) received, in which case this IFRS applies.

Amendment in IFRS 2 Share based Payment
A share-based payment transaction may be settled by another group entity (or a shareholder of any group entity) on behalf of the entity receiving or acquiring the goods or services. Paragraph 2 also applies to an entity that
(a) receives goods or services when another entity in the same group (or a shareholder of any group entity) has the obligation to settle the share-based payment transaction.
(b) has an obligation to settle a share-based payment transaction when another entity in the same group receives the goods or services unless the transaction is clearly for a purpose other than payment for goods or services supplied to the entity receiving them.

Here we got the overview of IFRS 2.

Amendment in IFRS 2 Share based Payment

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