Proposed amendments to “share-based payment” accounting standard

Australian Accounting Standard AASB 2 Share-based Payment prescribes the accounting treatment (expensing) for all share-based payments, including equity grants under employee share schemes. Among the transactions caught by AASB 2 are grants by an employer to its employees of shares (or other equity instruments) in the parent company of the employer.

The Australian Accounting Standards Board has now issued Exposure Draft ED 161, Group Cash-settled Share-based Payment Transactions, January 2008, seeking comments on proposals to amend AASB 2 to clarify that, for example, AASB 2 applies to cash-settled plans where rewards reflect the value of equity in the parent company (i.e. including ‘phantom’ or ‘shadow’ equity plans) and where the parent company rather than the employer is responsible for the cash payment to the employee.

The comments are due by 29 February 2008.

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The proposed amendments to the Australian standard mirror proposed amendments to the International Financial Reporting Standard IFRS 2 Share-based Payment, upon which comments are due by 17 March 2008.

AASB Interpretation 11 AASB 2 – Group and Treasury Share Transactions provides guidance on how share-based payments should be accounted for in financial statements. In line with proposed amendments to international IFRIC 11 IFRS 2 – Group and Treasury Share Transactions, it is proposed to amend AASB Interpretation 11 AASB 2 to specify that the employer should measure the goods or services received under arrangements to which the proposed IFRS 2/AASB 2 amendments referred to above apply in accordance with the requirements applicable to cash-settled share-based payment transactions.

The subsidiary (i.e. the employer) that receives services from its employees is responsible for accounting for the services in accordance with AASB 2 regardless of whether there is a reimbursement arrangement between the subsidiary and its parent entity. This does not change the existing requirements of AASB Interpretation 11 AASB 2.

AASB 2 and the proposed amendments are also expressed to apply to transactions involving equity in another entity in the same group as the employer rather than in the parent or holding company of the employer, but note that such arrangements are not common in Australia because they would not meet the definition of “Qualifying Shares” or “Qualifying Rights”, which would prevent participants accessing the concessional tax treatment for employee share schemes under Division 13A of the Income Tax Assessment Act 1936.

Lastly, there may be significant governance issues in situations where equity is provided to executives of subsidiary and associated companies where there are other minority or majority shareholders.

Copies of ED 161 are available from the AASB website here.

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