Proposed amendments to IFRS 2 and IFRIC 11 - Group Cash-settled Share-based Payment Transactions
At its October 2007 meeting, the Board decided to propose amendments to IFRS 2 Share-based Payment and IFRIC 11 IFRS 2 – Group and Treasury Share Transactions.
Paragraph 3 of IFRS 2 requires an entity to recognise as share-based payment transactions transfers of equity instruments of the entity’s parent (or another entity in the same group) to parties that have supplied goods or services to the entity. IFRIC 11 provides guidance on how the entity that receives the goods or services from its suppliers should account for such transactions in its financial statements.
Some constituents asked for guidance on how, in the financial statements of an entity that receives goods or services from its suppliers, similar arrangements that are share-based and cash-settled should be accounted for. For example, how should the following arrangements be accounted for in the financial statements of a subsidiary that receives goods or services from its suppliers (including employees)?
(a) The suppliers of the subsidiary will receive cash payments that are linked to the price of the equity instruments of the subsidiary
(b) The suppliers of the subsidiary will receive cash payments that are linked to the price of the equity instruments of the parent of the subsidiary.
Under either arrangement, the parent has an obligation to make the required cash payments to the suppliers of the subsidiary. The subsidiary does not have any obligation to make such payments to its suppliers or provide them with its equity instruments.
When the IFRIC discussed the issue in September 2007, it concluded that existing IFRS requirements in this area were not clear.
At its meeting in October 2007, the Board discussed the issue and concluded that the issue could be clarified through amendments to IFRS 2 and IFRIC 11. The Board, therefore, asked the staff to prepare an exposure draft.
The proposed amendment to IFRS 2 clarifies that an entity that receives goods or services from its suppliers must apply IFRS 2 even though it itself has no obligation to make the required share-based cash payments.
The proposed amendment to IFRIC 11 specifies that an entity that receives goods or services from its suppliers under the above arrangements should measure the goods or services in accordance with the requirements applicable to cash-settled share-based payment transactions, as set out in IFRS 2.
The proposed amendment to IFRIC 11 does not change its existing requirements.
Is this project part of the Memorandum of Understanding?
No. The MoU sets out a Roadmap of Convergence between IFRSs and US GAAP 2006 – 2008.
Click here for more information on the MoU.
Next steps
The Board issued an Exposure Draft in December 2007. The Exposure Draft is open for public comments until 17 March 2008.
To view the Exposure Draft, click here.
To comment on the Exposure Draft, click here.
Following the consultation period, the Board will start redeliberations.
Further information
Click here to download the full project summary.