IFRS 2 Share-based Payment summary - applies in 2025

Summary

This video provides a comprehensive overview of IFRS 2, which covers the financial reporting of share-based payment transactions. It explains key concepts such as equity-settled and cash-settled transactions, as well as the recognition and measurement of goods or services received in exchange for equity instruments or cash. The video highlights the importance of vesting conditions, the difference between vested and non-vested payments, and how to account for modifications or cancellations. It also discusses the challenges in measuring employee services and the guidelines for disclosure under IFRS 2.

Takeaways

• 😀 IFRS 2 governs financial reporting for share-based payment transactions, specifying how entities should account for them in their financial statements.
• 😀 A share-based payment transaction occurs when an entity receives goods or services in exchange for its equity instruments (like shares or options) or cash based on the equity instruments' value.
• 😀 There are two main types of share-based payment transactions: equity-settled and cash-settled transactions.
• 😀 In equity-settled transactions, an entity issues its own equity instruments to settle the transaction, and the value is determined by the fair value of the instruments at the grant date.
• 😀 In cash-settled transactions, the entity pays cash based on the value of its equity instruments, and the liability is remeasured at fair value at each reporting date.
• 😀 Vesting conditions are requirements that must be fulfilled by the counterparty (such as an employee) before becoming entitled to the share-based payment.
• 😀 If benefits are non-vested (immediate entitlement), the payment is recognized fully at the grant date. If benefits are vested, recognition happens over the vesting period.
• 😀 IFRS 2 requires the recognition of goods when they are received and services as they are provided, with corresponding entries in liabilities (for cash-settled) or equity (for equity-settled transactions).
• 😀 For equity-settled transactions, the fair value of the equity instruments is measured at the grant date, especially when it's difficult to measure the fair value of services received from employees.
• 😀 IFRS 2 prohibits adjustments to total equity after the vesting date but allows for transfers within equity components, such as if share options are not exercised.
• 😀 The standard also includes provisions on the modification, cancellation, and settlement of share-based payment transactions, ensuring proper measurement and disclosure.

Q & A

What is the objective of IFRS 2?

The objective of IFRS 2 is to specify the financial reporting by an entity when it undertakes a share-based payment transaction. This includes reflecting the effect of these transactions in the entity's profit or loss or financial position.

What defines a share-based payment transaction?

A share-based payment transaction is a transaction in which an entity receives goods or services from a supplier (including employees) in exchange for equity instruments or cash determined by the price or value of the entity's equity instruments.

What are the two types of share-based payment transactions mentioned in IFRS 2?

The two types of share-based payment transactions mentioned are equity-settled transactions, where payment is made with equity instruments (such as shares or share options), and cash-settled transactions, where payment is made with cash based on the value of equity instruments.

How does IFRS 2 apply when the share-based payment transaction involves group members?

IFRS 2 applies when a parent company incurs an obligation to settle a share-based payment transaction with a supplier, but the supplier (e.g., an employee) is part of a subsidiary or another group member. The entity that needs to settle the transaction is the one required to apply IFRS 2.

What is the distinction between cash-settled and equity-settled share-based payment transactions?

In a cash-settled transaction, the entity pays cash (or other assets) based on the value of its equity instruments, whereas in an equity-settled transaction, the entity pays with its own equity instruments such as shares or share options.

What is a vesting condition in the context of share-based payment?

A vesting condition is a requirement that must be fulfilled before an entity can recognize the share-based payment. For example, an employee might need to complete a certain period of service before becoming entitled to share-based compensation.

How should an entity recognize a share-based payment transaction?

An entity should recognize goods received when they are delivered and services as they are provided. The recognition depends on whether the transaction is cash-settled or equity-settled. In cash-settled transactions, the entity recognizes a liability, and in equity-settled transactions, it recognizes an increase in equity.

What is the method for measuring equity-settled share-based payment transactions?

For equity-settled share-based payment transactions, the measurement is based on the fair value of goods or services received at the receipt date. If the transaction involves employees, the fair value of the equity instruments granted (e.g., share options) is used instead of the fair value of the services provided.

What happens if a share-based payment transaction involves non-vested benefits?

If the benefits are not vested (i.e., granted immediately without further conditions), the entity recognizes the full expense for the services received at the grant date with the corresponding increase in equity.

How are modifications and cancellations of share-based payment transactions handled under IFRS 2?

IFRS 2 provides guidance on modifications, cancellations, and settlements of share-based payment transactions, ensuring that changes are appropriately accounted for, with adjustments to liabilities or equity based on the nature of the changes.