12779 Bd Ias Plus Ifric8
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January 2006 – IFRIC Special
Audit
IAS Plus.
Published for our clients and staff throughout the world
IFRIC 8 clarifies the scope of IFRS 2
Deloitte global IFRS
leadership team
On 12 January 2006, the International Financial Reporting Interpretations Committee (IFRIC)
issued IFRIC 8 Scope of IFRS 2. The Interpretation clarifies that IFRS 2 Share-based Payment
applies to share-based payment transactions in which the entity cannot specifically identify
IFRS global office
some or all of the goods or services received.
Global IFRS leader
Scope
Ken Wild
kwild@deloitte.co.uk
IFRIC 8 applies to share-based payment transactions (as defined in IFRS 2) when the identifiable
consideration received (or to be received) by the entity (if any) appears to be less than the fair
value of the equity instruments granted or the liability incurred.
IFRS centres of excellence
IFRIC 8 does not apply to transactions that are specifically excluded from the scope of IFRS 2 as
Americas
set out in paragraphs 3 to 6 of the Standard.
D. J. Gannon
iasplusamericas@deloitte.com
The issue
Asia-Pacific
The Interpretation addresses the issue of whether IFRS 2 applies to share-based payment
Stephen Taylor
transactions in which the entity cannot identify specifically some or all of the goods or services
iasplus@deloitte.com.hk
received. Constituents had raised with the IFRIC that situations arise in which it may be difficult
to demonstrate that the entity has received goods or services (e.g. Black Economic
Europe-Africa
Empowerment transactions in South Africa).
Johannesburg
A consequence of addressing this issue is the question of whether other non-identifiable
Graeme Berry
consideration has been received if the entity has made a share-based payment and the
iasplus@deloitte.co.za
identifiable consideration received (or to be received) appears to be less than the fair value of
Copenhagen
the equity instruments granted or the liability incurred.
Jan Peter Larsen
dk_iasplus@deloitte.dk
The consensus
London
The IFRIC concluded as follows:
Veronica Poole
iasplus@deloitte.co.uk
• IFRS 2 applies to share-based payment transactions in which the entity cannot identify
specifically some or all of the goods or services received;
Paris
Laurence Rivat
• in the absence of specifically identifiable goods or services, other circumstances may indicate
iasplus@deloitte.fr
that goods or services have been (or will be) received, in which case IFRS 2 applies;
• if the identifiable consideration received (if any) appears to be less than the fair value of the
equity instruments granted or the liability incurred, typically this circumstance indicates that
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other consideration (i.e. unidentifiable goods or services) has been (or will be) received;
Nearly three million people have visited
• the entity should measure the identifiable goods or services received (or to be received) in
our www.iasplus.com web site. Our
accordance with IFRS 2;
goal is to be the most comprehensive
source of news about international
• the entity should measure the unidentifiable goods or services received (or to be received) as
financial reporting on the Internet.
the difference between the fair value of the share-based payment and the fair value of any
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identifiable goods or services received (or to be received);
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IAS Plus – January 2006 – IFRIC Special
• the unidentifiable goods or services received (or to be received) should be measured at grant
date; and
• for cash-settled transactions in which unidentifiable goods or services are received, the
liability should be measured at each subsequent reporting date in order to be consistent
with IFRS 2. Subsequent re-measurements of the liability do not affect the measurement of
the unidentifiable goods or services received (or to be received) as those are measured at
grant date.
Implementation issues
Non-reciprocal arrangements
The Basis for Conclusions of IFRIC 8 acknowledges that, in some cases, there may be no
consideration. The reason for the transfer would explain why no goods or services have been
or will be received (e.g. a principal shareholder, as part of estate planning, transfers some of his
shares to a family member for nil consideration). Such a transaction would fall outside of the
scope of IFRIC 8 (and, therefore, of IFRS 2) where there is no indication that any consideration
has been or will be received for the share-based payment.
However, genuine non-reciprocal arrangements are expected to be very rare. The IFRIC noted
that directors of an entity would generally expect to receive some goods or services for equity
instruments issued.
Are entities required to compare the fair value of the share-based payment
with the fair value of the consideration received for every transaction?
By introducing the concept of unidentifiable consideration, being the excess (if any) of the fair
value of the equity instruments granted or liability incurred over the fair value of the goods or
services received in return, some have questioned whether IFRIC 8 could be taken to require a
comparison of these amounts for every share-based payment transaction.
The Basis for Conclusions of IFRIC 8 confirms that this is not the case – that the comparison is
only necessary “when the identifiable consideration received appears to be less than the fair
value of the share-based payment”. However, the Interpretation does not provide any more
specific guidance as to the circumstances that should trigger a detailed comparison.
Effective date and transition
Entities are required to apply IFRIC 8 for annual periods beginning on or after 1 May 2006.
Earlier application is encouraged. If an entity applies IFRIC 8 for a period beginning before
1 May 2006, that fact should be disclosed. The Interpretation should be applied retrospectively
in accordance with the requirements of IAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors, but subject to the general transitional provisions of IFRS 2.
There are no special transitional arrangements for first-time adopters applying IFRS 1 First-
time Adoption of International Financial Reporting Standards.
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