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Introduction

After a long debate, an International Financial Reporting Standard relating to share-based payments was issued by the International Accounting Standard Board (IASB) and endorsed by the European Community (EU) at the beginning of 2005.

Before the introduction of IFRS 2, companies reporting under IFRS that were largely using share-based payments took advantage of the fact that it represented a valid tool to reward employees as well as focus them on company targets without affecting income statement performances.

Now, as a result of IFRS 2, costs related to share-based payments have to be charged to the income statement. This represents the real accounting innovation introduced by IFRS 2. Companies using share-based payments that have applied IFRS 2 have seen a significant impact on results and, in certain circumstances, rethought company remuneration strategies based on share-based payments.

Moreover, as it requires the use of complex pricing models, IFRS 2 is far from easy to apply. As a result, it is likely that many companies will need to engage external experts to measure and account for share-based payments under IFRS 2.

Before developing a share-based payment plan, management should be aware of some of its key features. By understanding these features more comprehensively, management will have a better understanding of income statement consequences and significantly reduce the impact of complex, time-consuming and costly accounting requirements.

This guide aims to be a friendly explanation of the key points you need to bear in mind when setting up a share-based payment plan. If you know these “golden rules”, you can make your accounting method less complex, reduce your implementation costs and gain a better idea of how future results will be affected by IFRS 2 accounting rules.

Share-Based Payments (PDF, 3.8Mb)

Designing share-based payment schemes- accounting and business considerations under IFRS June 2007