LACPA- IFRS 2
July 5, 2006
Roger Nasr
Share-Based Payment.
Agenda
• Overview of IFRS 2
– Scope and Definition
– Recognition
– Measurement
– Vesting Conditions
– Valuation
• Case studies
– Grant date
– Graded vesting
– Market conditions
IFRS 2 Share-Based Payment
© 2006 Deloitte - Roger Nasr
Overview
• Scope exclusions
– Issuance of shares in a business combination (IAS 22)
– Share based payments in the scope of IAS 32 & 39
– Share based payments other than for goods or services
• Definition
–Transaction in which an entity receives or
acquires goods or services in exchange for:
– Equity instruments OR
– Based on the price of equity instruments
IFRS 2 Share-Based Payment
© 2006 Deloitte - Roger Nasr
Types
–Equity settled
–Cash settled
–Choice between the two
alternatives
IFRS 2 Share-Based Payment
© 2006 Deloitte - Roger Nasr
New – IFRS 2
Share based payments
Share based payments
Goods or services
Asset
IFRS 2 Share-Based Payment
Expense
Equity instruments/
Liabilities
(linked to share price)
Equity
Liability
© 2006 Deloitte - Roger Nasr
New – IFRS 2
Overview of recognition
With cash
alternative
Equity settled
Cash settled
Fair value
grant day only
Fair value
each balance sheet
date
(Measure at each balance sheet)
No changes in fair
value
Changes in fair value
in P&L until exercise
Changes if fair value
follow split
IFRS 2 Share-Based Payment
Equity component
(measure at grant date only)
Cash component
© 2006 Deloitte - Roger Nasr
New – IFRS 2
Equity settled payments
Equity settled
Employees or similar
Other than employees
Fair value
grant date only
Value goods or services
at date received
Expense allocated
over vesting period
Expense recognised as
goods or services are used
IFRS 2 Share-Based Payment
© 2006 Deloitte - Roger Nasr
Vesting conditions
• Vesting conditions means that the employee does not get
the right to exercise options, unless certain conditions are
met
• Two types of vesting conditions
– Market based
– Achieve a target share price or share price relative to an index
– Non-market based
– Employment
– Accounting key figures (e.g. EPS, revenue targets)
– Personal targets
– IPO of the company
– Sale of the company
IFRS 2 Share-Based Payment
© 2006 Deloitte - Roger Nasr
Vesting Conditions
• Issuance of fully vested shares
• relates to past service therefore expensed immediately
• Issuance of shares with a vesting period
• relates to services over vesting period: expense over vesting
period
• Two types of vesting conditions:`
1. Non-market based
vesting condition
OR
2. Market based
vesting condition
Fair value excludes vesting
conditions
Fair value includes these vesting
conditions
True-up
Adjust number of shares or
vesting date for actual results
No true-up
Do not adjust number of shares
or vesting date for actual results
IFRS 2 Share-Based Payment
© 2006 Deloitte - Roger Nasr
New – IFRS 2
Valuation models
Black-Scholes method
IFRS 2 Share-Based Payment
Binomial method
© 2006 Deloitte - Roger Nasr
Example
100 options each that
vest if employed in 3
years
5
0
0
Fair value per option = $15
Total grant date value?
$750,000 (=500x100x15)
$250 each year
Adjust expense for actual vested shares
since there is a non-market vesting
condition
IFRS 2 Share-Based Payment
© 2006 Deloitte - Roger Nasr
Example (continued)
If 80% are expected to vest (and does vest)
Year 1
$200,000
Year 2
Year 3
$200,000
$200,000
$600,000 total expense over three years
(50,000 options x 80%) x $15
IFRS 2 Share-Based Payment
© 2006 Deloitte - Roger Nasr
Example (continued)
IF
At the end of year 1: expect 85% of options to vest
At the end of year 2: expect 88% of options to vest
At the end of year 3: 44,300 shares (or 88.6%) actually vest
Year 1
$212,500
(250 x 0.85)
Year 2
Year 3
$227,500
$224,500
(500 x 0.88 212.5)
(750 x 0.886 (212.5 + 227.5))
Total expense = $664,500 ($15 x 44,300)
IFRS 2 Share-Based Payment
© 2006 Deloitte - Roger Nasr
Example (continued)
All employees resign during period 3 without receiving
options
(or another non-market vesting condition is not met)
Year 1
Year 2
$200,000
$200,000
(250 x 0.8)
(250 x 0.8)
Year 3
- $400,000
- (250 x 0.8) x 2
$0 total expense reduced to zero 
because no options vest
IFRS 2 Share-Based Payment
© 2006 Deloitte - Roger Nasr
Case studies
Case study 1
• Accounting for a grant of options with graded vesting
conditions
– What expense is recognised in year 2 and why?
IFRS 2 Share-Based Payment
© 2006 Deloitte - Roger Nasr
Case study 2
• Grant date
– Why is the determination of grant date important? How does grant
date impact the period over which any expense relating to a sharebased payment is recognised? (discussion)
– What is the grant date for the share options?
– Over what period should the expense in relation to the share options
be recognised?
– Does this have any impact on the determination of the fair value of
the share options granted?
IFRS 2 Share-Based Payment
© 2006 Deloitte - Roger Nasr
Case study 3
• Definitions of market conditions
– Determine whether the vesting conditions for the share-based
payment transaction of Lamentana and Benson should be considered
a market condition or a non-market condition
IFRS 2 Share-Based Payment
© 2006 Deloitte - Roger Nasr
Questions
IFRS 2 Share-Based Payment
© 2006 Deloitte - Roger Nasr