About IFRS 2
The principle of IFRS 2 is where an entity recognises an expense for goods or services with the credit entry recognised as a liability.
IFRS 2 is one of the most challenging accounting standards, as it involves complex valuation issues.
This standard was introduced in February 2004 and prescribes the measurement and recognition for all share based payment awards.
IFRS2 applies to transactions between employees and third parties, whether settled in cash or in equity instruments.
The standard requires entities to recognise all share-based payment awards based on fair value, when the goods and services are received, which is determined at the grant date for share-based payments issued to employees.
As share-based payment awards have become a larger component of employee and executive compensation, standard setters came to believe that share based payment awards are an integral component of a total compensation packet.
As such, it was concluded that an entity should recognise an expense for shares based payments, just as it does for cash compensation.
Under the grant date model used in IFRS2, an entity measures the fair value of a share-based payment award issued to an employee at the grant date.
The entity does not adjust the fair value afterwards, regardless of non appreciation or forfeiture, unless there is a modification in the award. This can result in an entity taking expense even if there is no value to the employee.
This more conservative approach is a much preferred and compliant one in comparison to prior to the introduction of the standard, where no expense was recognised on awards with value to the employee.
IFRS 2 Reporting Suite
IFRS 2 Tranche Level Valuation
Our Black Scholes model values all grants & awards at the tranche level so that valuations can be setup to meet exact IFRS2 requirements for our clients.
IFRS 2 Disclosure Reporting
Access all of your complex disclosure figures for quarterly and end of year submissions from our detailed disclosure reporting entries.
IFRS 2 Fair Value Reporting
Generate our fair value reports in multiple formats.
We have comprehensive reporting for all Black Scholes inputs as well as detailed processed and non processed fair value reports.
IFRS 2 Deferred Tax Reports
Measure Deferred Tax Assets based on amount for which deduction is expected; Re-measure deferred tax asset based on share price (intrinsic value) at each reporting date; When intrinsic value at settlement is less than grant-date fair value, cumulative tax benefit recognised is based on intrinsic value.
IFRS 2 Expense Accurals
Our Expense Accrual Reporting allows you to generate expense accrual reports by entity, subsidiary, department, section and many more participant level fields.
Get your Final 28 expense accrual breakdowns in the format you want with our expense reporting, with the capability to apply performance factors where required, and a full audit trail leading back to the original valuations.
IFRS 2 Fair Earnings Per Share
Ensure that your entities can disclose earnings per share by calculating and disclosing earnings per share in accordance with the IFRS Standard.
The range of EPS & Common Equivalent Reporting available facilitate this delivery.
Differences in the treatment of compensatory stock options
under IFRS 2 compared to ASC 718
The differences will impact a company’s reported earnings, effective tax rate and cash flows when adopting IFRS. As under ASC 718, IFRS requires a company to record an expense for employee stock option awards based upon the fair value of the stock option at the grant date.
Tax benefits reported under IFRS, however, are based upon the estimated future tax deduction at the reporting date. In most jurisdictions, the tax deduction would be based on the “intrinsic value” of the stock option at exercise, i.e., the stock value in excess of the option exercise price.
Consequently, for stock options granted with an exercise price that equals (or exceeds) the fair market value of the shares no deferred tax asset is recognized under IFRS at the time of the grant because no inherent tax deduction is present in the award at that time.
Tax benefits are only recorded as, and to the extent, the stock price rises.
Typically, this will trail, often by a considerable length of time, the recorded compensation expense.
Companies that adopt IFRS will thus often have greater reductions to after-tax earnings for stock option awards prior to the time the award settles than they would have under ASC 718. In addition, there will be volatility in the effective tax rate and deferred tax accounts over the life of the stock options due to the stock price movements in each reporting period.
Furthermore, under IFRS, these impacts will be reported in the operating section of the statement of reported cash flows.
Under IFRS, the tax effect of any excess in the estimated tax deduction over the recorded compensation expense is credited (subject to a recognition test) to equity and recorded as a deferred tax asset. Under ASC 718, only the excess tax benefit recognised at the time of exercise is credited to equity (adjusted paid-in capital, or “APIC”).
This could result in significantly different impacts on equity and deferred tax accounts during the life of the stock option.
Conversely, if either the estimated or final tax deduction is less than the recorded compensation expense under IFRS, the tax benefit shortfall is charged to equity only to the extent that a tax benefit for that individual stock option award has already been credited to equity.
IFRS does not apply the ASC 718 concept of an APIC “pool” (also known as a “windfall pool”), which enables tax benefit shortfalls to be offset against aggregated prior windfalls.
Services & Support
Having access to our software to automate your reporting is one thing, but Global Shares go beyond that when it comes to creating impeccable financial reports. Our specialist team will help implement your historic data as well as providing guidance and solutions on how to utilise the software best going forward.
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