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BASIS FOR CONCLUSIONS ON IFRS 2 DEFINITION OF VESTING CONDITION 2013 AMENDMENTS

BASIS FOR CONCLUSIONS ON IFRS 2 DEFINITION OF VESTING CONDITION 2013 AMENDMENTS

BASIS FOR CONCLUSIONS ON IFRS 2 DEFINITION OF VESTING CONDITION 2013 AMENDMENTS

The Board decided to clarify the definition of ‘vesting conditions’ in IFRS 2 to ensure the consistent classification of conditions attached to a share-based payment. Previously, this Standard did not separately define ‘performance condition’ or ‘service condition’, but instead described both concepts within the definition of vesting conditions.

The Board decided to separate the definitions of performance condition and service condition from the definition of vesting condition to make the description of each condition clearer.

BASIS FOR CONCLUSIONS ON IFRS 2 DEFINITION OF VESTING CONDITION 2013 AMENDMENTS

In response to the comments received on the Exposure Draft Annual Improvements to IFRSs 2010 -2012 Cycle (Proposed amendments to International Financial Reporting Standards) (the ‘ED’), published in May 2012, the Board addressed the following concerns that had been raised about the definitions of performance condition, service condition and market condition:
(a) whether a performance target can be set by reference to the price (or value) of another entity (or entities) that is (are) within the group;
(b) whether a performance target that refers to a longer period than therequired service period may constitute a performance condition;
(c) whether the specified period of service that the counterparty is required to complete can be either implicit or explicit;
(d) whether a performance target needs to be influenced by an employee;
(e) whether a share market index target may constitute a performance condition or a non-vesting condition;
(f) whether the definition of performance condition should indicate that it includes a market condition;
(g) whether a definition of non-vesting condition is needed; and
(h) whether the employee’s failure to complete a required service period due to termination of employment is considered to be a failure to satisfy a service condition.

BASIS FOR CONCLUSIONS ON IFRS 2 DEFINITION OF VESTING CONDITION 2013 AMENDMENTS

Whether a performance target can be set by reference to the price (or value) of another entity (or entities) that is (are) within the group

The Board decided to clarify that within the context of a share-based payment transaction that involves entities in the same group, a performance target can be defined by the price (or value) of the equity instruments of another entity in that group. This amendment is consistent with the guidance in paragraphs 3A and 43A–43D of IFRS 2. Paragraph 3A, which provides guidance about the scope of IFRS 2, states that “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”.

The Board decided to make a similar amendment to the definition of market condition to indicate that a market condition can be based on the market price of the entity’s equity instruments or the equity instruments of another entity in the same group.
Whether a performance target that refers to a longer period than the required service period may constitute a performance condition
The Board observed that IFRS 2 was not clear about the duration of a performance target relative to the duration of the related service condition. Some understood IFRS 2 to require that the duration of the performance has to be wholly within the period of the related service requirement; others understood that a performance target could be achieved over a period that extends beyond the period for which the employee is required to provide a service.

BASIS FOR CONCLUSIONS ON IFRS 2 DEFINITION OF VESTING CONDITION 2013 AMENDMENTS

Whether the specified period of service that the counterparty is required to complete can be either implicit or explicit

In the definition of performance condition, the Board decided to highlight a eature that distinguishes a performance condition from a non-vesting condition in accordance with paragraph BC171A of IFRS 2; namely, that a performance condition has an explicit or implicit service requirement and a non-vesting condition does not. This is so that, in order to constitute a performance condition, a performance target needs to be accompanied by a service requirement, which can be implicit or explicit. The Board observed that if the share-based payment arrangement does not contain an explicit requirement to provide services, the arrangement may still contain an implicit service condition.

BASIS FOR CONCLUSIONS ON IFRS 2 DEFINITION OF VESTING CONDITION 2013 AMENDMENTS

Whether a performance target needs to be influenced by an employee

During its deliberations the Board observed that for a target to constitute a performance condition it needs to be both ‘within the influence’ of the employee and in the interest of the entity. Consequently, the Board proposed that the definition of performance condition should make clear that a performance target is defined by reference to the entity’s own operations (or activities) or the price (or value) of its equity instruments (including shares and share options).

BASIS FOR CONCLUSIONS ON IFRS 2 DEFINITION OF VESTING CONDITION 2013 AMENDMENTS

Whether a share market index target may constitute a performance condition or a non-vesting condition
The Board analysed the case in which a share-based payment is conditional on a share market index target and whether it would be considered a performance condition or a non-vesting condition. For example, a grant might be conditional on a stock exchange index (of which the entity’s shares are a part) reaching a specified target and the employee remaining in service up to the date that the target is met

BASIS FOR CONCLUSIONS ON IFRS 2 DEFINITION OF VESTING CONDITION 2013 AMENDMENTS

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