Insights into IFRS 2

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Preparing financial statements in accordance with International Financial Reporting Standards (IFRS) can be challenging. Each year, the International Accounting Standards Board (IASB) publishes new Standards and amendments, which can significantly impact how preparers should present a complete set of financial statements.

Share-based payments have become increasingly popular over the years, with many entities using equity instruments or cash and other assets (based on the value of equity instruments) as a form of payment to directors, senior management, employees, and other suppliers of goods and services.

IFRS 2 ‘Share-based Payment’ was introduced in 2004 and the accounting principles have remained largely unchanged since. Our ‘Insights into IFRS 2’ series is aimed at demystifying the Standard by explaining the fundamentals of accounting for share-based payments using simple language and providing insights to help entities cut through some of the complexities associated with accounting for these types of arrangements. 

Classification of share-based payment transactions and vesting conditions

Share-based payments (the accounting requirements of which are set out in IFRS 2 ‘Share-based Payment’) can be difficult to understand in practice and businesses often have difficulty applying the requirements to increasingly complex and innovative share-based payment arrangements.

This article explains how to determine the classification of share-based payment transactions and vesting conditions, both of which significantly impact the accounting requirements to be applied under IFRS 2.