IFRS-2 and Indian Norms - 16 Dec 2008

Tuesday, December 16, 2008

IFRS-2 and Indian Norms

http://jabwemetca.blogspot.com/2008/12/ifrs-2-and-indian-norms.html

 

How are the Indian norms
different from those specified by the IFRS (International Financial
Reporting Standards) in IFRS-2 `Share-based Payments'?
Though
the ICAI's guidance note is largely similar to IFRS-2, there are
certain critical aspects of share-based payments which are not touched
by the Indian accounting guidance.
A critical difference between the
Indian standard and its international counterpart is that the IFRS
deals with all kinds of share-based payments, whereas the Indian
guidance note applies only to employee share-based payments such as
ESOPs and Employee Stock Purchase Plan (ESPP).
At present, there is
no guidance available in India for arrangements where share-based
considerations are given for purchase of goods and services. The IFRS
goes one step further to discuss situations even where the goods or
services received in exchange are not identifiable, like in cases where
shares are granted to charitable institutions. The Indian framework
would again be at a loss to deal with such a situation.
Further, the
IFRS also contains guidance on treatment of stock options given to
employees of a subsidiary or any other group company, commonly known as
`Group Shares Transactions'. There is no guidance available in India
for accounting of such transactions and the SEBI guidelines only
require disclosures for these in the financials of both the parent and
the subsidiary company.
The IFRS is more or less fait accompli by
2011. Once the IFRS is mandatorily adopted in India, a key matter
relating to ESOP plans will emerge as a common issue across entities:
the treatment of Fringe Benefit Tax (FBT) on ESOPs in case where a
company claims reimbursement of such tax from the concerned employee.
While
one would tend to think that such an arrangement being in the nature of
a reimbursement is best treated as a reimbursement of tax for the
entity, there is an ongoing debate on the accounting treatment under
the IFRS: Whether the IFRS will treat this arrangement more as a
modification to the terms of the options, whereby the exercise price is
increased to include the FBT element and then accounted for as a
modification to the terms and conditions?
The ICAI's guidance note
prescribes accounting depending on whether the liability would be
`equity settled' or `cash settled', whereas SEBI's guideline does not
differentiate between these two.