AASB 2008-1 - Amendments to Australian Accounting Standard - Share-based Payments: Vesting Conditions and Cancellations - February 2008

Accounting Standard AASB 2008- 1 February 2008 Amendments to Australian Accounting Standard – Share-based Payments: Vesting Conditions and Cancellations [ AASB 2 ] Obtaining a Copy of this Accounting Standard This Standard is available on the AASB website: www.aasb. com . au. Alternatively, printed copies of this Standard are available for purchase by contacting: The Customer Service Officer Australian Accounting Standards Board Level 7 600 Bourke Street Melbourne Victoria AUSTRALIA Postal address: PO Box 204 Collins St reet West Vic toria 8007 AUSTRALIA Phone: (03) 9617 7637 Fax: (03) 9617 7608 E-mail: publications@aasb. com . au Website: www.aasb. com . au COPYRIGHT © 2008 Commonwealth of Australia This AASB Standard contains International Accounting Standards Committee Foundation copyright material. Reproduction within Australia in unaltered form (retaining this notice) is permitted for personal and non-commercial use subject to the inclusion of an acknowledgment of the source. 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ISSN 1036-4803 Other Enquiries Phone: (03) 9617 7600 Fax: (03) 9617 7608 E-mail: standard@aasb. com .au CONTENTS Preface Accounting Standard AASB 2008-1 AmenDMENTS TO aUSTRALIAN aCCOUNTING sTANDARD – Share-based Payments: Vesting Conditions and Cancellations Paragraphs Objective 1 Application 2 – 4 Amendment s to AASB 2 5 – 1 3 DELETED IFRS 2 TEXT Page 11 Australian Accounting Standard AASB 2008-1 Amendments to Australian Accounting Standard – Share-based Payments: Vesting Conditions and Cancellations is set out in paragraphs 1 – 1 3 . All the pa ragraphs have equal authority. Preface Standard Amended by AASB 2008-1 Th is Standard makes amendments to Australian Accounting Standard AASB 2 Share-based Payment . These a mendments arise from the issuance in January 2008 of amendments to IFRS 2 S hare-based Payment by the Internati onal Accounting Standards Board regarding v esting c onditions and c ancellations. Main Features of this Standard Application Date This Standard is applicable to annual reporting periods beginning on or after 1 January 2009 , with early adoption permitted for annual reporting periods beginning on or after 1 January 2005 but before 1 January 2009 . Main Requirements These amendments clarify that vesting conditions comprise service conditions and performance conditions only and that other features of a share-based payment transaction are not vesting conditions. They also specif y that all cancellations, whether by the entity or by other parties, should receive the same accounting treatment. aCCOUNTING STANDARD AASB 2008-1 The Australian Accounting Standards Board makes Accounting Standard AASB 2008-1 Amendments to Australian Accounting Standard – Share-based Payments: Vesting Conditions and Cancellations under section 334 of the Corporations Act 2001 . D.G. Boymal Dated 7 February 2008 Chair – AASB aCCOUNTING STANDARD AASB 2008-1 AMENDMENTS TO AUSTRALIAN ACCOUNTING STANDAR d – Share-based Payments: Vesting Conditions and Cancellations Objective 1 The o bjective of this Standard is to make amendments to AASB 2 Share-based Payment . Application 2 T his Standard applies to: (a) each entity that is required to prepare financial reports in accordance with Part 2M.3 of the Corporations Act and that is a reporting entity; (b) general purpose financial statements of each other reporting entity; and (c) financial statements that are, or are held out to be, general purpose financial statements . 3 This Standard applies to annual reporting periods beginning on or after 1 January 2009 . 4 This Standard may be applied to annual reporting periods beginning on or after 1 January 2005 but before 1 January 2009 . When an entity applies this Standard to such an annual reporting period , it shall disclose that fact. Amendments to AASB 2 5 After paragraph 21, a new heading and paragraph 21A are added as follows : Treatment of non-vesting conditions 21A Similarly, an entity shall take into account all non-vesting conditions when estimating the fair value of the equity instruments granted. Therefore, for grants of equity instruments with non-vesting conditions, the entity shall recognise the goods or services received from a counterparty that satisfies all vesting conditions that are not market conditions (e.g. services received from an employee who remains in service for the specified period of service), irrespective of whether those non-vesting conditions are satisfied. 6 The first sentence of paragraph 28 is amended to read as follows: 28 If a grant of equity instruments is cancelled or settled during the vesting period (other than a grant cancelled by forfeiture when the vesting conditions are not satisfied) : … 7 Paragraph 28(b) is amended to read as follows : 28(b) … Any such excess shall be recognised as an expense. However, if the share-based payment arrangement included liability components, the entity shall remeasure the fair value of the liability at the date of cancellation or settlement. Any payment made to settle the liability component shall be accounted for as an extinguishment of the liability; and 8 After paragraph 28, paragraph 28 A is added as follows: 28A If an entity or counterparty can choose whether to meet a non-vesting condition, the entity shall treat the entity’s or counterparty’s failure to meet that non-vesting condition during the vesting period as a cancellation. 9 A note concerning p aragraph 62 is added as follows: 62 [Deleted by the AASB] 10 The following definitions in Appendix A are amended to read as follows: vest To become an entitlement. Under a share-based payment arrangement , a counterparty’s right to receive cash, other assets or equity instruments of the entity vests when the counterparty’s entitlement is no longer conditional on the satisfaction of any vesting conditions . vesting conditions The conditions that determine whether the entity receives the services that entitle the counterparty to receive cash, other assets or equity instruments of the entity, under a share-based payment arrangement . Vesting conditions are either service conditions or performance conditions. Service conditions require the counterparty to complete a specified period of service. Performance conditions require the counterparty to complete a specified period of service and specified performance targets to be met (such as a specified increase in the entity’s profit over a specified period of time). A performance condition might include a market condition . 11 After paragraph IG4 of the Implementation Guidance accompanying AASB 2 , a new heading, paragraph IG4A and diagram are added as follows: Definition of vesting conditions IG4A AASB 2 defines vesting conditions as the conditions that determine whether the entity receives the services that entitle the counterparty to receive cash, other assets or equity instruments of the entity under a share-based payment arrangement. The following flowchart illustrates the evaluation of whether a condition is a service or performance condition or a non-vesting condition. Does the condition determine whether the entity receives the services that entitle the counterparty to the share-based payment? No Yes Non-vesting condition Does the condition require only a specified period of service to be completed? Yes No Service condition Performance condition 12 After IG Example 9, paragraph IG15A and IG Example 9A are added as follows: IG15A I f a share-based payment has a non-vesting condition that the counterparty can choose not to meet and the counterparty does not meet that non-vesting condition during the vesting period, paragraph 28A of the Standard requires that event to be treated as a cancellation. Example 9A illustrates the accounting for this type of event. IG Example 9 A Share-based payment with vesting and non-vesting conditions when the counterparty can choose whether the non-vesting condition is met BACKGROUND An entity grants an employee the opportunity t o participate in a plan in which the employee obtains share options if he agrees to save 25 per cent of his monthly salary of CU400 for a three-year period. The monthly payments are made by deduction from the employee’s salary. The employee may use the accumulated savings to exercise his options at the end of three years, or take a refund of his contributions at any point during the three-year period. The estimated annual expense for the share-based payment arrangement is CU120. After 18 months, the employee stops paying contributions to the plan and takes a refund of contributions paid to date of CU1,800 . APPLICATION OF REQUIREMENTS There are three components to this plan: paid salary, salary deduction paid to the savings plan and share-based payment . The entity recognises an expense in respect of each component and a corresponding increase in liability or equity as appropriate. The requirement to pay contributions to the plan is a non-vesting condition, which the employee chooses not to meet in the second year. Therefore, in accordance with paragraphs 28(b) and 28A of the Standard , the repayment of contributions is treated as an extinguishment of the liability and the cessation of contributions in year 2 is treated as a cancellation. Year 1 Expense CU Cash CU Liability CU Equity CU Paid salary (75% × 400 × 12) 3,600 (3,600) Salary deduction paid to the savings plan (25% × 400 × 12) 1,200 (1,200) Share-based payment 120 (120) Total 4,920 (3,600) (1,200) (120) Year 2 Paid salary (75% × 400 × 6 + 100% × 400 × 6) 4,200 (4,200) Salary deduction paid to the savings plan (25% × 400 × 6) 600 ( 600 ) Refund of contributions to the employee (1,800) 1,800 Share-based payment (acceleration of remaining expense) (120 × 3 – 120) 240 (240) Total 5,040 (6,000) 1,200 (240) 13 After paragraph IG23, a heading, paragraph IG24 and a table are added as follows: Summary of conditions for a counterparty to r e ceive an equity intrument granted and of accounting treatments IG24 The table below categorises, with examples, the various conditions that determine whether a counterparty receives an equity instrument granted and the accounting treatment of share-based payments with those conditions. Summary of conditions that determine whether a counterparty receives an equity instrument granted V ESTING CONDITIONS NON - VESTING CONDITIONS Service conditions Performance conditions Performance conditions that are market conditions Other performance conditions Neither the entity nor the counterparty can choose whether the condition is met Counterparty can choose whether to meet the condition Entity can choose whether to meet the condition Example conditions Requirement to remain in service for three years Target based on the market price of the entity’s equity instruments Target based on a successful initial public offering with a specified service requirement Target based on a commodity index Paying contributions towards the exercise price of a share-based payment Continuation of the plan by the entity Include in grant-date fair value? No Yes No Yes Yes Yes (a) Accounting treatment if the condition is not met after the grant date and during the vesting period Forfeiture. The entity revises the expense to reflect the best available estimate of the number of equity instruments expected to vest. (paragraph 19) No change to accounting. The entity continues to recognise the expense over the remainder of the vesting period. (paragraph 21) Forfeiture. The entity revises the expense to reflect the best available estimate of the number of equity instruments expected to vest. (paragraph 19) No change to accounting. The entity continues to recognise the expense over the rem a inder of the vesting period. (paragraph 21A) Cancellation. The entity recognises immediately the amount of the expense that would otherwise have been recognised over the remainder of the vesting period. (paragraph 28A) Cancellation. The entity recognises immediately the amount of the expense that would otherwise have been recognised over the remainder of the vesting period. (paragraph 28A) (a) In the calculation of the fair value of the share-based payment, the probability of continuation of the plan by the entity is assumed to be 100 per cent. DELETED i frs 2 TEXT Deleted I FRS 2 text is not part of AASB 2008-1 or AASB 2. Paragraph 62 An entity shall apply the following amendments retrospectively in annual periods beginning on or after 1 January 2009: (a) the requirements in paragraph 21A in respect of the treatment of non-vesting conditions; (b) the revised definitions of ‘vest’ and ‘vesting conditions’ in Appendix A; (c) the amendments in paragraphs 28 and 28A in respect of cancellations. Earlier application i s permitted. If an entity applies these amendments for a period beginning before 1 January 2009, it shall disclose that fact.