1. LACPA- IFRS 2 July 5, 2006 Roger Nasr
Share-Based Payment.

2. Agenda Overview of IFRS 2 Case studies 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

3. Overview

4. Scope exclusions Definition
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

5. Types Equity settled Cash settled Choice between the two alternatives
IFRS 2 Share-Based Payment
© 2006 Deloitte - Roger Nasr

6. New – IFRS 2 Share based payments
Goods or services
Equity instruments/
Liabilities
(linked to share price)
Asset
Expense
Equity
Liability
IFRS 2 Share-Based Payment
© 2006 Deloitte - Roger Nasr

7. New – IFRS 2 Overview of recognition
Equity settled
Cash settled
With cash alternative
Fair value
grant day only
Fair value
each balance sheet date
Equity component
(measure at grant date only)
Cash component
(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
© 2006 Deloitte - Roger Nasr

8. New – IFRS 2 Equity settled payments
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

9. 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

10. 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
2. Market based
vesting condition OR
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

11. New – IFRS 2 Valuation models
Black-Scholes method
Binomial method
IFRS 2 Share-Based Payment
© 2006 Deloitte - Roger Nasr

12. 5 Example 100 options each that vest if employed in 3 years
Fair value per option = $15
Total grant date value?
Adjust expense for actual vested shares since there is a non-market vesting condition
$750,000 (=500x100x15) $250 each year
IFRS 2 Share-Based Payment
© 2006 Deloitte - Roger Nasr

13. $200,000 Year 1 Year 2 Year 3 Example (continued)
$600,000 total expense over three years
(50,000 options x 80%) x $15
If 80% are expected to vest (and does vest)
IFRS 2 Share-Based Payment
© 2006 Deloitte - Roger Nasr

14. $212,500 $227,500 Year 2 Year 3 $224,500 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
$212,500
Year 1
(250 x 0.85)
$227,500
Year 2
(500 x
212.5)
Year 3
$224,500
(750 x
( ))
Total expense = $664,500 ($15 x 44,300)
IFRS 2 Share-Based Payment
© 2006 Deloitte - Roger Nasr

15. $0 total expense reduced to zero  because no options vest
Example (continued)
- $400,000
Year 3
(250 x 0.8) x 2
$0 total expense reduced to zero  because no options vest
All employees resign during period 3 without receiving options
(or another non-market vesting condition is not met)
$200,000
Year 1
(250 x 0.8)
Year 2
IFRS 2 Share-Based Payment
© 2006 Deloitte - Roger Nasr

16. Case studies

17. 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

18. 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 share-based 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

19. 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

20. Questions ?
IFRS 2 Share-Based Payment
© 2006 Deloitte - Roger Nasr