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US GAAP versus IFRS - Share-based payments - EY - United States


Share-based payments

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The US GAAP guidance for share-based payments, ASC 718, Compensation — Stock Compensation, and ASC 505-50, Equity — Equity-Based Payments to Non-Employees, is largely converged with the guidance in IFRS 2, Share-Based Payment.

Both require a fair value-based approach in accounting for share-based payment arrangements whereby an entity (1) acquires goods or services in exchange for issuing share options or other equity instruments (collectively referred to as "shares" in this guide) or (2) incurs liabilities that are based, at least in part, on the price of its shares or that may require settlement in its shares.

Under both US GAAP and IFRS, this guidance applies to transactions with both employees and nonemployees and is applicable to all companies. Both ASC 718 and IFRS 2 define the fair value of the transaction to be the amount at which the asset or liability could be bought or sold in a current transaction between willing parties.

Further, they require the fair value of the shares to be measured based on a market price (if available) or estimated using an option-pricing model. In the rare cases in which fair value cannot be determined, both sets of standards allow the use of intrinsic value, which is remeasured until the settlement.

In addition, the treatment of modifications and settlements of share-based payments is similar in many respects.

Finally, both require similar disclosures in the financial statements to provide investors with sufficient information to understand the types and extent to which the entity is entering into share-based payment transactions.

Significant differences

Transactions with nonemployeesThe US GAAP definition of an employee focuses primarily on the common law definition of an employee.

Either the fair value of (1) the goods or services received, or (2) the equity instruments granted is used to value the transaction, whichever is more reliably determinable.

Measurement date is the earlier of (1) the date at which a "commitment for performance" by the counterparty is reached, or (2) the date at which the counterparty's performance is complete.
IFRS has a more general definition of an employee that includes individuals who provide services similar to those rendered by employees.

Fair value of the transaction should be based on the fair value of the goods or services received, and only on the fair value of the equity instruments granted in the rare circumstance that the fair value of the goods and services cannot be reliably estimated.

Measurement date is the date the entity obtains the goods or the counterparty renders the services. No performance commitment concept exists.
Measurement and recognition of expense — awards with graded vesting featuresEntities make an accounting policy election to recognize compensation cost for awards containing only service conditions either on a straight-line basis or on an accelerated basis, regardless of whether the fair value of the award is measured based on the award as a whole or for each individual tranche.Must recognize compensation cost on an accelerated basis and each individual tranche must be separately measured.
Equity repurchase features at employee's election Does not require liability classification if employee bears risks and rewards of equity ownership for at least six months from the date the equity is issued or vests.Liability classification is required (no six-month consideration exists).
Deferred taxesCalculated based on the cumulative GAAP expense recognized and adjusted upon realization of the tax benefit.

If the tax benefit exceeds the deferred tax asset, the excess ("windfall benefit") is credited directly to shareholder equity. A shortfall of the tax benefit below the deferred tax asset is charged to shareholder equity to the extent of prior windfall benefits, and to tax expense thereafter.
Calculated based on the estimated tax deduction determined at each reporting date (e.g., intrinsic value).

If the tax deduction exceeds cumulative compensation cost, deferred tax based on the excess is credited to shareholder equity. If the tax deduction is less than or equal to cumulative compensation cost, deferred taxes are recorded in income.
Modification of vesting terms that are improbable of achievementIf an award is modified such that the service or performance condition, which was previously improbable of achievement, is probable of achievement as a result of the modification, the compensation cost is based on the fair value of the modified award at the modification date. Grant date fair value of the original award is not recognized.Probability of achieving vesting terms before and after modification is not considered. Compensation cost is the grant date fair value of the award, together with any incremental fair value at the modification date.


No further convergence is planned at this time.

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