EFRAG: Draft comment letter on the classification and measurement of share-based payment transactions

16 December 2014

EFRAG generally agrees with the IASB’s assessment of the issues and with its proposed amendments to address them, since they provide practical solutions that would reduce divergences in application.

EFRAG has published its draft comment letter in response to the IASB´s ED/2014/5 Classification and Measurement of Share-based Payment Transactions. Responses to the draft comment letter are requested by 30 January 2015.

In November 2014, the IASB issued an Exposure Draft Classification and Measurement of Share-based Payment Transactions (the ‘ED’). The amendments clarify that:

• Accounting for the effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payment should follow the approach used for measuring equity-settled share-based payment
• When an entity settles the share-based payment arrangement net by withholding a specified portion of the equity instruments to meet a statutory tax withholding obligation, the award should be classified as equity-settled in its entirety if, without the net settlement feature, the entire share-based payment would otherwise be classified as equity-settled
• In case of modification of a share-based payment from cash-settled to equity-settled, the award is remeasured by reference to the modification date fair value of the equity instruments granted; any difference between the new measurement and the liability recognised in the past for the original cash-settled plan is charged to profit or loss

In relation to the second amendment, EFRAG believes that the proposed classification reflects the economic substance of the plan, and therefore should not be characterised as an exception. EFRAG also recommends including an example to illustrate the accounting for the payment of the withholding tax, consistently with the analysis that the plan is in substance an equity-settled plan. 

EFRAG supports that the amendments are applied in accordance with the requirements in IAS 8, that is requiring retrospective application unless it is impracticable.

Finally, EFRAG is concerned that addressing more and more specific terms and conditions of different share-based plans is resulting in ever-increasing complexity in the requirements of IFRS 2. The IASB should envisage a more general review of IFRS 2 to consider all implementation issues in a principle-based way and this could be done as part of a post-implementation review of the Standard. 

Press release

Draft comment letter

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