The Interpretations Committee received a request to clarify how an entity should account for a price difference between the institutional offer price and the retail offer price for shares issued in an initial public offering (IPO).
The submitter refers to the fact that the final retail price could be different from the institutional price because of:
- an unintentional difference arising from the book-building process; or
- an intentional difference arising from a discount given to retail investors by the issuer of the equity instruments as indicated in the prospectus.
The submitter asked the Interpretations Committee to clarify whether the transaction should be analysed within the scope of IFRS 2 Share-based Payment.
The Interpretations Committee considered whether the transaction analysed involves the receipt of identifiable or unidentifiable goods or services from the retail shareholder group, and therefore whether it is a share-based payment transaction within the scope of IFRS 2. Paragraph 13A of IFRS 2 requires that if consideration received by the entity appears to be less than the fair value of the equity instruments granted or liability incurred, then this situation typically indicates that other consideration (ie unidentified goods or services) has been (or will be) received by the entity. The Interpretations Committee noted that applying this guidance requires judgement and consideration of the specific facts and circumstances of each transaction.
In the circumstances underlying the submission, the Interpretations Committee concluded that no unidentified goods or services have been (or will be) received. This is because the price agreed between each shareholder group reflected only a transaction to raise funds and the retail shareholder group did not provide any goods or services, only the cash consideration to acquire the shares.
The Interpretations Committee also noted that the entity has issued shares in two different markets (the institutional market and the retail market). It was unclear from the submission which price (the retail price or the institutional price) represents the fair value of a share in accordance with IFRS 13 Fair Value Measurement. However, IFRS 13 paragraph B4(d) states that a transaction price may differ from fair value if the transaction takes place in a market other than the principal market (or most advantageous market). The Interpretations Committee concluded that the difference, if any, between the retail price and the fair value of a share in the fact pattern considered appeared to relate to the existence of different markets rather than the receipt of additional goods or services. Consequently, the Interpretations Committee observed that the guidance in IFRS 2 is not applicable because there is no share-based payment transaction.
The Interpretations Committee noted that this situation is different to the issue on which it had issued an agenda decision in March 2013. In that agenda decision (“Accounting for reverse acquisitions that do not constitute a business”) the Interpretations Committee had concluded that any difference in the fair value of the shares deemed to have been issued by the accounting acquirer and the fair value of the accounting acquiree’s identifiable net assets represents a service received by the accounting acquirer. The Interpretations Committee observed that in that fact pattern, the service received from the other entity was a stock exchange listing for its shares, whereas in the fact pattern considered in this submission the stock exchange listing was not received in exchange for, or conditional on, the issue of the shares for less than fair value.
The Interpretations Committee noted that the equity instruments issued by the entity to the investors should be recognised in equity in accordance with paragraph 33 of IAS 32 Financial Instruments: Presentation and be measured at the fair value of the consideration received.
On the basis of the analysis above, the Interpretations Committee determined that, in the light of the existing IFRS requirements, sufficient guidance exists and that neither an Interpretation nor an amendment to a Standard was necessary. Consequently, the Interpretations Committee [decided] not to add this issue to its agenda.
Read the November IFRIC Update.