IFRIC September 2006

The staff presented a revised text for an Interpretation developed from D17 IFRS 2 – Group and Treasury Share Transactions. The IFRIC decided to present the revised text to the Board, after amendment to reflect changes agreed at the meeting, with a request that the Board approve it for issue as an Interpretation.

The IFRIC discussed the revised draft Interpretation, in particular the following areas:

• share-based payment arrangements in which a parent grants rights to its equity instruments directly to the employees of its subsidiary

• share-based payment arrangements in which a subsidiary grants rights to equity instruments of its parent to its employees
• transfers of employees between group entities.

Share-based payment arrangements in which a parent grants rights to its equity instruments direct to the employees of its subsidiary

The IFRIC noted that when the employees of a subsidiary are granted equity instruments of the parent as consideration for their services to the subsidiary, IFRS 2 paragraph 3 requires the subsidiary to recognise the transfers of equity instruments to its employees as share-based payment transactions within the scope of IFRS 2. The IFRIC noted that the parent has an involvement in the arrangement by committing itself to the employees of the subsidiary to provide them with its equity instruments. To reflect the parent’s involvement in the arrangement, the IFRIC decided that the subsidiary should apply the principle in IFRS 2 paragraph 3 by adopting in its own financial statements the same measurement basis as the parent uses in its consolidated financial statements. Accordingly, provided that the transaction is accounted for as equity-settled in the consolidated financial statements of the parent, the subsidiary should measure the services received on the equity-settled basis.

The IFRIC also concluded that a contribution from an equity participant which is equal to the fair value of the services provided by the employees should be recognised in equity in the financial statements of the subsidiary.

The IFRIC considered whether the Interpretation should address how to account for an intragroup payment arrangement in which the subsidiary pays the parent for the provision of the equity instruments to the employees.
The IFRIC decided not to address that issue, since it did not wish to widen the scope of the Interpretation to address an issue that related to accounting for intragroup payment arrangements generally.

Share-based payment arrangements in which a subsidiary grants rights to equity instruments of its parent to its employees

The IFRIC observed that, from the perspective of the subsidiary, an arrangement in which the parent grants rights to its equity instruments to the employees of its subsidiary is different from one in which the subsidiary grants to its employees rights to equity instruments of the parent.

The IFRIC noted that the latter arrangement, like the former, is a share-based payment arrangement in accordance with IFRS 2 paragraph 3. The IFRIC noted, however, that, in the latter arrangement, the subsidiary has an obligation to provide to its employees in return for their services equity instruments that are not equity instruments of the subsidiary. The IFRIC concluded that the subsidiary should account for that transaction with its employees as a cash-settled, rather than equity-settled, share-based payment transaction.

Transfers of employees between group entities

Lastly, the IFRIC discussed situations in which a parent grants rights to its equity instruments to the employees of its subsidiary, with a vesting condition that requires the employees to work for the group for a particular period.
An employee of one subsidiary might transfer employment to another subsidiary during the vesting period, without the employee’s rights to equity instruments of the parent under the original share-based payment arrangement being affected.

The IFRIC agreed that, if an employee still meets the
non-market vesting condition of continuing service with the group, the transfer of employment should not be treated as a new grant in the financial statements of the subsidiary to which employment transfers. Nor should the transfer of employment be treated as an employee’s failure to satisfy the non-market vesting condition of continuing service in the financial statements of the subsidiary from which employment transfers.

Furthermore, the IFRIC agreed that, if the employee, after transferring between group entities, fails to meet a non-market vesting condition, each relevant subsidiary should adjust the amount previously recognised in respect of the services received in accordance with the principles in IFRS 2 paragraph 19.