The IFRIC received a request for guidance on how the following two cash-settled share-based payment schemes should be accounted for in the financial statements of an entity that receives services from its employees:
- Scheme 1 – The employees will receive cash payments that are linked to the price of the equity instruments of the entity; and
- Scheme 2 – The employees will receive cash payments that are linked to the price of the equity instruments of the parent of the entity.
Under both schemes, the parent (not the entity) is obliged to make the required cash payments to the employees. The IFRIC discussed the issues in the following two respects:
- whether Scheme 1 and Scheme 2 should be within the scope of IFRS 2; and
- how Scheme 1 and Scheme 2 should be accounted for in the financial statements of the entity.
In the staff’s view, scheme 1 would be within the scope of IFRS 2 in accordance with paragraph 6 of IFRIC 8. However, the IFRIC noted that, in the financial statements of the entity, neither scheme meets the definition of either a cash-settled share-based payment transaction or an equity-settled share-based payment transaction. Because both schemes are cash-settled and share-based, the IFRIC believed that both schemes should be within the scope of IFRS 2. Consequently, the services received from the employees should be measured based on the requirements applicable to cash-settled share-based payment transactions in accordance with IFRS 2.
The IFRIC tentatively decided to draw the issues to the attention of the Board and not to take them on to its own agenda. The IFRIC asked the staff to bring back to the September 2007 IFRIC meeting a text of a tentative agenda decision as well as a draft of potential amendments to IFRS 2 (particularly paragraph 3) and consequential amendments to IFRIC 11.