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August Bulletin – Accounting issues for share schemes – 3

3. Accounting issues for share schemes

The reluctance of the IASB to engage with the practical problems of Share Based Payment (IFRS2) accounting is well known. However, in June 2013 it was announced that they anticipated issuing, by the end of 2013, amendments to IFRS2 which will be primarily concerned with the definitions of “vesting” and “performance conditions.” In particular, they confirmed that a performance period could begin before the period of service by an employee. In May 2013 the Interpretations Subcommittee acknowledged that there were divergent treatments of inter group recharges for share-based payments but decided not to do anything about it. However, in another area in which they recognised that there was divergent accounting, they decided to undertake further study: currently IFRS2 gives no guidance as to whether a transaction is an equity-settled share-based payment or a cash-settled share-based payment if the manner of settlement is contingent on a future event which is outside the control of both the company and the employee(s). As a result, companies can adopt fundamentally different accounting for similar transactions.

The IASB also discussed Share Based Payment accounting in the context of its comprehensive review of the International Financial Reporting Standard for SMEs and re-confirmed the requirement for such companies to use option pricing theory mathematics to determine the accounting expense for options. This is in marked contrast to the UK’s own Accounting Standards Board, which has been undertaking a consultation exercise to consider whether to abolish completely the requirement for an accounting expense for options granted by unquoted SMEs.