Definition of share-based payment
A share-based payment is a transaction in which the entity receives goods or services either as consideration for its equity instruments or by incurring liabilities for amounts based on the price of the entity’s shares or other equity instruments of the entity.
Share-based payment transactions are of 3 types – equity-settled, cash-settled, and optionally-settled.
Companies may use share-based payments to compensate employees and non-employees. Accounting for share-based compensation such as stock options, restricted stock, and other types of share-based payments can be challenging. … Providing compensation to employees that is competitive. Attracting and retaining employees.
For cash settled share-based payment transactions, the standard requires the estimated tax deduction to be based on the current share price. As a result, all tax benefits received (or expected to be received) are recognised in the profit or loss.
Because share-based compensation is generally a noncash expense, many companies and financial analysts ignore this expense when restating earnings. Some argue that granting stock-based compensation provides a windfall for companies.
There are three main categories of share-based payment transactions within the scope of IFRS 2 (IFRS 2.1-6): equity-settled share-based payment transactions, cash-settled share-based payment transactions, share-based payment transactions with cash alternatives.
What is IND 109?
This standard provides guidelines for accounting and reporting of the Financial Instruments (FI) which will enable the stakeholders to assess the timing and uncertainty of a business future cash flow. …
Principal audit procedures – measurement of share-based payment expense
- Obtain management calculation of the expense and agree the following from the calculation to the contractual terms of the scheme: …
- Recalculate the expense and check that the fair value has been correctly spread over the stated vesting period.
Shares issued to employees normally have vesting conditions attached to them and vest over a three-year period, at the end of which the employees have to be in the company’s employment. However these shares have been given to the employees because of the performance of the company during the year.
Stock-based compensation is measured at the fair value of the instruments issued as of the grant date, even though the stock may not be issued until a much later date. The fair value of a stock option is estimated with a valuation method, such as an option-pricing model. … Fair value of restricted shares.
A share option is the right to buy a certain number of shares at a fixed price, some period of time in the future, within a company. … They can then keep the shares or, if the market price is higher, sell them at a profit.