The IFRS Interpretations Committee received a request to clarify the classification of a share-based payment transaction in which the manner of settlement is contingent a future event that is outside the control of both the entity and the counterparty.
The Interpretations Committee discussed the issue in November 2009 and January 2010. As a result of the discussions, in January 2010, the Interpretations Committee decided not to add the issue to its agenda primarily because it observed that it would be more appropriate for the issue to be considered as part of a post-implementation review of IFRS 2 together with other issues concerning the classification and measurement of share-based payment transactions.
In the May 2013 meeting, the Interpretations Committee revisited the issues using the updated analysis and the results of the additional outreach. The Interpretations Committee noted that IFRS 2 does not provide specific guidance on the share-based payment transaction described above. Paragraphs 34-43 of IFRS 2 provide guidance only on share-based payment transactions in which the terms of the arrangements provide the counterparty or the entity with a choice of settlement. In addition, the Interpretations Committee observed that it is unclear which guidance in other Standards or the Conceptual Framework would be the best analogy for the share-based payment transaction.
In the September 2013 meeting,the Interpretations Committee decided to recommend to the IASB that it should amend IFRS 2 in a narrow scope amendment project by adding guidance in line with the following approaches:
- a share-based payment in which the manner of settlement is contingent on a future event that is outside the control of both the entity and the counterparty should be classified as either cash-settled or equity-settled in its entirety depending on which outcome is probable.
- a change in classification of the share-based payment arising from a change in the most likely settlement method should be accounted for by recording a cumulative adjustment for the effects of the reclassification in a period in which the reclassification occurs, without restating comparatives.
In February 2014 and April 2014, the IASB discussed the approach recommended by the Interpretations Committee for amending IFRS 2. .
Some IASB members were concerned that the proposed amendment would introduce a principle for distinguishing between a liability and equity that would be inconsistent with the requirements in IAS 32. They also note that the definition of a liability is being discussed in the Conceptual Framework project.
Accordingly, the IASB decided not to propose an amendment to IFRS 2 for this issue.