Appendix A — Comparison of U.S. GAAP and IFRS Accounting Standards

Scope

Share-based payments issued to a customer that are not in exchange for a distinct good or service (i.e., share-based sales incentives) are measured and classified in accordance with ASC 718.

Share-based consideration payable to a customer is calculated by using a fair-value-based measure of the equity instrument as of the grant date. (See Chapter 14.)

IFRS 15 does not specify whether equity instruments granted by an entity to a customer are a type of consideration paid or payable to a customer. Further, IFRS 15 does not address how equity instruments granted to a customer in a revenue arrangement should be accounted for with regard to initial and subsequent measurement. Therefore, an entity should consider which standard (e.g., IFRS 2, IFRS 15, IAS 32), or combination of standards, could be applicable.

Accounting for employee and nonemployee awards

ASC 718 generally applies to share-based payment awards granted to employees and nonemployees in exchange for goods or services. While the accounting for employee and nonemployee awards is largely aligned, differences in the guidance are discussed in Chapter 9.

IFRS 2 applies to share-based payment transactions with employees and nonemployees in exchange for goods or services. Under IFRS 2, the accounting treatment is different for (1) share-based payment awards granted to employees and nonemployees that provide services in a manner similar to an employee and (2) share-based payment awards exchanged for goods or services that are not similar to employee services.

Measurement of awards

Share-based payment awards are generally recognized at a fair-value-based measure (for both employee and nonemployee awards).

For awards granted by a nonpublic entity, the entity is required to use a fair-value-based measure or calculated value if it is not practicable for it to estimate the expected volatility of its share price (see Section 4.13.2). In addition, a nonpublic entity can make an entity-wide accounting policy election to use either a fair-value-based measure (or a calculated value as noted above) or intrinsic value to measure its liability-classified awards (see Section 4.13.3).

Share-based payment awards issued to nonemployees in exchange for services that are similar to employee services are measured on the same basis as employee awards (i.e., a fair-value-based measure).

Share-based payment awards issued to nonemployees in exchange for goods or for services that are not similar to employee services are measured as of the date the entity obtains the goods or the counterparty renders the service. The awards should be measured on the basis of the fair value of the goods or services received unless that fair value cannot be estimated reliably. If the entity cannot estimate reliably the fair value of the goods or services received, the entity should measure their value by reference to the fair value of the equity instruments granted. However, there is a rebuttable presumption that the fair value of the goods or services received can be estimated reliably.

There are no practical expedients for nonpublic entities. A fair-value-based measure must be used for all share-based payment awards.

Estimating the expected term of stock options and similar instruments

If certain conditions are met, public and nonpublic entities can apply a practical expedient for estimating the expected term (see Sections 4.9.2.2.2 and 4.9.2.2.3).

In addition, for nonemployee awards, an entity can make an award-by-award election to use the contractual term as the expected term.

There is no practical expedient for estimating the expected term or, for nonemployee awards, election to use the contractual term as the expected term.

Classification — bearing the risks and rewards of equity share ownership for a reasonable period of time (put options)

A share-based payment award that can be repurchased for cash at fair value is not classified as a liability if the grantee bears the risks and rewards of equity share ownership for a reasonable period of time (see Section 5.3).

A share-based payment award is recognized as a liability if there is a present obligation to settle it in cash. There is no exception for a grantee that bears the risks and rewards of share ownership for a reasonable period of time.

Classification of awards with “other” conditions

Awards with conditions or other features that are indexed to something other than a market, performance, or service condition must be classified as liabilities, and the additional condition should be reflected in the award’s fair value (see Section 5.5).

Awards with conditions or other features that are indexed to something other than a market, performance, or service condition may be classified as equity if there is no obligation to settle the awards in cash, and the additional condition should be reflected in the award’s fair value as a non-vesting condition.

Classification of net-share-settled awards with statutory tax withholding obligations

The net share settlement of an employee award for statutory tax withholding purposes would not, by itself, result in liability classification of the award provided that the amount withheld does not exceed the maximum statutory tax rates in the employees’ relevant tax jurisdictions. If the amount withheld exceeds the maximum statutory tax rate, the entire award is classified as a liability (see Section 5.7.2).

A net share settlement feature that permits or requires an entity to withhold the number of equity instruments equal to the monetary value of the employee’s tax obligation does not, by itself, result in liability classification. When the number of equity shares withheld exceeds the number needed to settle the employee’s tax obligation, only the excess is accounted for as a liability.

Classification of awards settled with a variable number of shares

Certain awards that are settled with a variable number of shares are classified as a liability if the monetary value is solely or predominantly based on a fixed monetary amount, variations in something other than the fair value of the entity’s equity shares, or variations inversely related to changes in the fair value of the entity’s equity shares (see Section 5.2).

Awards that are settled with a variable number of shares are classified as equity.

Attribution of employee awards with service conditions and graded vesting

An entity makes an accounting policy election to recognize compensation cost for an employee award with only a service condition and a graded vesting schedule on a straight-line basis over either (1) the requisite service period for each separately vesting portion of the award as if the award was, in substance, multiple awards (i.e., on an accelerated basis) or (2) the total requisite service period for the entire award (see Section 3.6.5).

Such awards must be recognized only as in-substance multiple awards (i.e., on an accelerated basis).

Performance targets satisfied after the requisite service period

Performance conditions that can be met after the requisite service period or nonemployee’s vesting period are treated as vesting conditions. Therefore, the performance conditions are not directly reflected in an award’s fair-value-based measure (see Section 3.4.2.2).

Performance conditions that can be met after the requisite service period are treated as nonvesting conditions. Therefore, the performance condition is directly reflected in the award’s fair-value-based measure.

Share-based payment awards with a performance condition based on the occurrence of a liquidity event (e.g., IPO or change in control)

A liquidity event such as a change in control or an IPO is generally not considered probable (i.e., future event is likely to occur) until it occurs. This position is consistent with the guidance in ASC 805-20-55-50 and 55-51 on liabilities that are triggered upon the consummation of a business combination. Accordingly, an entity generally does not recognize compensation cost related to awards that vest upon a change in control or an IPO until the event occurs.

For awards in which a liquidity event is assessed as a performance condition, compensation cost is recognized if or when the liquidity event is expected to occur.

Often, it will not be possible to conclude that a liquidity event such as an IPO is expected to occur until plans are well advanced.

Forfeitures of awards

For service conditions, an entity makes an entity-wide accounting policy election (separately for employee awards and nonemployee awards) to either (1) estimate the total number of awards for which the requisite service period or nonemployee’s vesting period will not be rendered (i.e., estimate forfeitures expected to occur) or (2) account for forfeitures when they occur (see Section 3.4.1).

An entity is required to estimate forfeitures expected to occur.

Modification accounting for awards for which vesting is improbable but becomes probable (i.e., improbable to probable modifications)

Compensation cost is recognized on the basis of the modified award’s fair-value-based measure as of the modification date (see Section 6.3.3).

Compensation cost is recognized on the basis of the grant-date fair-value-based measure of the original award plus the incremental value of the modified award on the modification date.

Modification accounting for awards that change from liability-classified to equity-classified

Upon modification, the liability is reclassified to equity. If the fair-value-based measure of the modified award is less than the fair-value-based measure of the liability at the time of the modification, the difference is deemed to be a capital contribution and recognized in equity. If the fair-value-based measure of the modified award is greater than the fair-value-based measure of the liability at the time of the modification, the excess is generally recognized as compensation cost over the remaining employee’s requisite service period or nonemployee’s vesting period (see Section 6.8.2).

Upon modification, the existing liability is derecognized. The fair-value-based measure of the equity awards on the modification date is recognized in equity on the basis of which goods or services have been received (i.e., on the basis of the vesting period that has lapsed). Any difference between the liability derecognized and the amount recognized in equity is reflected immediately in the income statement.

Accounting for income tax effects

For awards that ordinarily give rise to a tax deduction under existing tax law, deferred taxes are computed on the basis of compensation expense that is recognized for financial reporting purposes. Tax benefits in excess of or less than the related DTA are recognized in the income statement in the period in which the amount of the deduction is determined (typically when an award vests or, in the case of options, is exercised or expires). (see Chapter 11).

For awards that ordinarily give rise to a tax deduction, deferred taxes are computed on the basis of the hypothetical tax deduction for the share-based payment corresponding to the percentage earned to date (i.e., the intrinsic value of the award on the reporting date multiplied by the percentage vested). Recognition of deferred taxes could be recorded through either profit or loss or equity.

Recognition of payroll taxes

Payroll tax liabilities related to share-based payment awards should be recognized on the date on which the measurement and payment of the tax are triggered (e.g., upon exercise or vesting; see Section 3.12).

Payments of payroll taxes are outside the scope of IFRS 2 because they are not payments to the suppliers of goods or services. However, in a manner consistent with the guidance in IAS 37, entities should recognize a liability for them at the end of each reporting period because they are similar to cash-settled share-based payments under IFRS 2.

Group share-based payment awards

Share-based payment awards that are issued by a subsidiary to employees or nonemployees of the subsidiary and that are settled in the parent’s equity are generally classified as equity awards in the stand-alone financial statements of the subsidiary (see Section 2.9).

Liability-classified awards (e.g., cash-settled awards) that are issued by a parent to employees or nonemployees of a subsidiary are generally remeasured at the end of each period in the determination of compensation cost in the stand-alone financial statements of the subsidiary (i.e., the same amount of compensation cost recognized by the parent on a consolidated basis). If the subsidiary has no obligation associated with the awards, the offset would be recognized as a capital contribution in equity (see Section 2.9).

Share-based payment awards that are issued by a subsidiary to employees of the subsidiary and that are settled in the parent’s equity are generally classified as liability awards under IFRS 2 in the stand-alone financial statements of the subsidiary unless the subsidiary does not have an obligation to settle the awards.

If a parent provides cash-settled awards to employees of a subsidiary and the subsidiary has no obligation to settle the awards, the awards are treated as equity-settled awards in the stand-alone financial statements of the subsidiary.

Employee stock purchase plan (ESPP)

The guidance in ASC 718-50 on ESPPs may be different from that for other share-based payment awards (e.g., the requisite service period for ESPPs is the purchase period). In addition, an ESPP may be considered compensatory or noncompensatory. To qualify as a noncompensatory plan and, therefore, not give rise to the recognition of compensation cost, an ESPP must meet certain conditions (see Chapter 8).

The accounting requirements for ESPPs are the same as those for all share-based payment awards. Therefore, ESPPs are compensatory and treated in the same manner as any other equity-settled share-based payment arrangement.