IFRIC to review Share Based Payment: Service, Performance and Non-Vesting Conditions - 21 Mar 2010

IFRIC to review Share Based Payment: Service, Performance and Non-Vesting Conditions
 

IFRIC, the interpretations committee of the International
Accounting Standards Board (ô°€IASBô°) at its meeting
on 4 March 2010, concluded that improved guidance was required for the
treatment of service, performance and non-vesting conditions.   They noted that the current
definitions in IFRS2 lacked clarity. 
For example, in the definition section:

a) vesting conditions are defined on a broad basis to
accommodate both service conditions and performance conditions;

b) service conditions and performance conditions are not
separately defined, but described with a few features within the definition of
vesting conditions;

c) market conditions which are a subset of performance
conditions are separately defined;

and

d) non-vesting conditions are neither defined nor described.

There was also concern that there was uncertainty as to
whether the duration of a service condition needed to be the same as the
duration of any associated performance condition and how the award should be
treated if they were different.

IFRIC was reluctant to explore these issues in any great
depth for fear that it might draw them into a wholesale review of the
Standard.    Instead,
they decided that they would try and apply US practice in this area and asked
their staff to prepare guidance based on the approach followed in US GAAP (see
FAS123 and ASC 718-10-55-73).  
Under US GAAP, the general approach is to determine a ô°€service
periodô°
by reference to all the terms of an award and then spread the costs over that
period.

Given the differences in the design of UK and US share
plans, and the application of performance conditions, it will be interesting to see
whether following the US approach provides the simplicity and clarity that
IFRIC seeks.   However, this
use of the American Share Based Payment Standard to help interpret the
International Standard may encourage others to look to US practice when dealing
with other areas of difficulty or ambiguity in IFRS2. Share Based Payment:
Service, Performance and Non-Vesting Conditions

IFRIC, the interpretations committee of the International
Accounting Standards Board (ô°€IASBô°) at its meeting
on 4 March 2010, concluded that improved guidance was required for the treatment
of service, performance and non-vesting conditions.   They noted that the current definitions in IFRS2
lacked clarity.  For example, in
the definitions section:

a) ô°€vesting conditions are defined on a broad basis to
accommodate both service conditions and performance conditions;

b) service conditions and performance conditions are not
separately defined, but described with a few features within the definition of
vesting conditions;

c) market conditions which are a subset of performance
conditions are separately defined;

and

d) non-vesting conditions are neither defined nor described.ô°

There was also concern that there was uncertainty as to
whether the duration of a service condition needed to be the same as the
duration of any associated performance condition and how the award should be
treated if they were different.

IFRIC was reluctant to explore these issues in any great
depth for fear that it might draw them into a wholesale review of the
Standard.    Instead,
they decided that they would try and apply US practice in this area and asked
their staff to prepare guidance based on the approach followed in US GAAP (see
FAS123 and ASC 718-10-55-73).  
Under US GAAP, the general approach is to determine a ô°€service
periodô°
by reference to all the terms of an award and then spread the costs over that
period.

Given the differences in the design of UK and US share
plans, and the application of performance conditions, it will be interesting to see
whether following the US approach provides the simplicity and clarity that
IFRIC seeks.   However, this
use of the American Share Based Payment Standard to help interpret the
International Standard may encourage others to look to US practice when dealing
with other areas of difficulty or ambiguity in IFRS2.

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Date:

March 2010