Appendix A — Comparison of U.S. GAAP and IFRS Accounting Standards
Appendix A — Comparison of U.S. GAAP and IFRS Accounting Standards
Under IFRS Accounting Standards, the primary source of guidance on
the accounting for share-based payment awards is IFRS 2. While ASC 718 and IFRS 2
share the same principles-based approach and are largely converged, there are some
differences in how entities apply those principles
The table below summarizes some of the significant differences
between U.S. GAAP and IFRS Accounting Standards in the accounting for share-based
payment awards.1 For detailed interpretive guidance on IFRS 2, see A16, “Share-Based Payment,”
of Deloitte’s iGAAP publication.
Accounting for Share-Based Payment
Transactions
Subject
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U.S. GAAP
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IFRS Accounting Standards
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Scope
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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.)
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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.
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Accounting for employee and nonemployee awards
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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.
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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.
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Measurement of awards
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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).
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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.
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Estimating the expected term of stock
options and similar instruments
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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.
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There is no practical expedient for
estimating the expected term or, for nonemployee awards,
election to use the contractual term as the expected
term.
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Classification — bearing the risks and
rewards of equity share ownership for a reasonable period of
time (put options)
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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).
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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.
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Classification of awards with “other”
conditions
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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).
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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.
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Classification of net-share-settled awards
with statutory tax withholding obligations
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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).
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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.
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Classification of awards settled with a
variable number of shares
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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).
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Awards that are settled with a variable
number of shares are classified as equity.
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Attribution of employee awards with service
conditions and graded vesting
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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).
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Such awards must be recognized only as
in-substance multiple awards (i.e., on an accelerated
basis).
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Performance targets satisfied after the
requisite service period
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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).
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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.
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Share-based payment awards with a
performance condition based on the occurrence of a liquidity
event (e.g., IPO or change in control)
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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.
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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.
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Forfeitures of awards
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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).
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An entity is required to estimate
forfeitures expected to occur.
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Modification accounting for awards for which
vesting is improbable but becomes probable (i.e., improbable
to probable modifications)
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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).
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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.
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Modification accounting for awards that
change from liability-classified to equity-classified
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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).
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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.
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Accounting for income tax effects
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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).
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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.
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Recognition of payroll taxes
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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).
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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.
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Group share-based payment awards
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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).
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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.
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Employee stock purchase plan (ESPP)
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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).
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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.
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Footnotes
1
Differences are based on a comparison of authoritative
literature under U.S. GAAP and IFRS Accounting Standards and do not
necessarily include interpretations of such literature.