Library / Technical Accounting Manual: IFRS, IAS and Ind AS Equivalents

IFRS 2 - Share-based Payment

Indian equivalent: Ind AS 102 - Share-based Payment

Objective and scope

IFRS 2 requires a company to record an expense when it pays for goods or services with shares or share options instead of cash - because giving away equity has a genuine economic cost, even though no cash leaves.

Core principle

When a company rewards employees with stock options, no cash moves - but value is transferred to those employees at the expense of other shareholders. IFRS 2 says this must be measured at fair value and charged as an expense over the period the recipients earn it, so profits aren't artificially flattered.

Defined terms and technical terminology

Term	Technical meaning
Share-based payment	A transaction where the entity receives goods/services and pays in shares, options, or cash based on its share price.
Equity-settled	Settled by issuing the entity's own shares or options.
Cash-settled	Settled in cash whose amount depends on the share price (e.g., share appreciation rights).
Grant date	The date the entity and counterparty agree the arrangement - used to measure fair value for equity-settled awards.
Vesting period	The period over which the recipient must satisfy conditions (usually service) before the award becomes theirs.
Vesting conditions	Conditions (service or performance) that must be met for the award to vest.

Application and worked illustrations

The core principle

Even without cash, granting shares or options is a cost of obtaining services. For equity-settled awards, fair value is fixed at the grant date and spread as an expense over the vesting period, matched to the service received, with the credit going to equity. For cash-settled awards, a liability is recognised and remeasured to fair value each period until settled, with changes in profit.

Worked example - employee stock options

GrowthCo grants options to 100 employees, valued at ₹30,000 each at grant date (total fair value ₹30,00,000). Employees must stay 3 years (the vesting period). The cost is spread: ₹10,00,000 expense each year for 3 years, reducing profit, with the other side increasing equity.

Journal entry - Annual share-based payment charge
Account	Debit (₹)	Credit (₹)
Employee benefit expense (P&L)	10,00,000
Equity - share option reserve		10,00,000

Adjusting for forfeitures

If some employees quit before vesting, the expense is trued-up based on the number of options expected to actually vest - you don't charge for options that will never be earned (for service conditions). Market performance conditions (like a share-price target), however, are baked into the grant-date fair value and not reversed even if unmet.

Common mistake: recording no expense because 'no cash was paid'. The transfer of equity value is a real cost that must be expensed.

Common mistake: remeasuring an equity-settled award after grant date. Equity-settled awards are fixed at grant-date fair value; only cash-settled awards are remeasured.

IND AS LINK

Ind AS 102 aligns with IFRS 2 - grant-date fair value and expensing over the vesting period. This governs Indian ESOP accounting; SEBI also has separate regulatory rules for listed-company ESOPs.

Further worked illustrations

Extra numeric example - a cash-settled award (SARs)

A company grants 1,000 share appreciation rights (SARs) that pay cash equal to the share-price rise over 3 years. Because they're settled in cash, IFRS 2 treats them as a liability remeasured to fair value each year. If the fair value of the SARs is ₹300 each at year 1, the liability = ₹3,00,000, built up over the vesting period and remeasured each reporting date until paid - unlike equity-settled awards, which are fixed at grant date.

INDIAN REGULATORY CONTEXT

Indian companies widely use Employee Stock Option Plans. Ind AS 102 governs the accounting (grant-date fair value, expensed over vesting), while SEBI's SBEB Regulations govern the legal/regulatory side for listed companies (trust structures, disclosures, limits). Startups in particular carry large ESOP expenses that can turn an operating profit into a reported loss.

TECHNICAL EDGE CASE

A company's share price crashes, leaving employee options 'underwater' (worthless). It reprices them to a lower exercise price. IFRS 2 says you must recognise the incremental fair value given by the modification in addition to the original grant-date cost - you can't reduce the expense just because the options lost value, but you do add the extra value handed to employees by the repricing.

Extended technical analysis

Measurement, vesting conditions and modification accounting

IFRS 2 requires all share-based payment transactions to be recognised at fair value. The critical analytical distinction is between equity-settled transactions (measured once at grant date, never remeasured) and cash-settled transactions (remeasured at every reporting date until settlement).

Equity-settled vs Cash-settled - Comparative Mechanics
Feature	Equity-settled	Cash-settled
Measurement date	Grant date fair value	Each reporting date - fair value of the liability
Subsequent remeasurement	None for fair value; only for the number expected to vest	Yes - full remeasurement each period through P&L
Credit entry	Equity (share option reserve)	Liability
Effect of share price movement post-grant	No P&L effect	Direct P&L effect each period
Typical instrument	ESOPs, restricted stock units	Share appreciation rights (SARs), phantom stock

Vesting conditions - the decisive classification

IFRS 2 - Treatment of Conditions
■ Identify the condition attached to the award
▼
◆ Is it a VESTING condition or a NON-VESTING condition?
▼
▸ SERVICE condition (employee must remain employed) → NOT in grant-date fair value; TRUE-UP the number expected to vest each period
▼
▸ NON-MARKET PERFORMANCE condition (profit target, EPS target, product launch) → NOT in grant-date fair value; TRUE-UP each period
▼
▸ MARKET performance condition (share price target, TSR) → INCLUDED in grant-date fair value; NO true-up even if never achieved
▼
■ NON-VESTING condition (e.g. employee savings requirement) → INCLUDED in grant-date fair value; NO true-up

The consequence is significant and counter-intuitive: where an award is subject to a market condition (say, the share price must exceed ₹500) and that condition is never met, the entity still recognises the full cumulative expense, because the probability of achievement was already embedded in the grant-date fair value. By contrast, where a non-market performance condition (say, a profit target) fails, the cumulative expense is reversed to nil.

Worked illustration - true-up for forfeitures

An entity grants 1,000 options to each of 100 employees; grant-date fair value ₹300 per option; three-year service condition. Total potential expense = 100 × 1,000 × ₹300 = ₹3,00,00,000.

Cumulative Expense True-Up
Year	Expected to vest	Cumulative fair value	Cumulative expense (× n/3)	Expense for the year
1	90 employees	2,70,00,000	90,00,000	90,00,000
2	85 employees	2,55,00,000	1,70,00,000	80,00,000
3	88 employees (actual)	2,64,00,000	2,64,00,000	94,00,000

Journal entry - Year 1 - equity-settled share-based payment expense
Account	Debit (₹)	Credit (₹)
Employee benefits expense (P&L)	90,00,000
Share option outstanding reserve (Equity)		90,00,000

Modifications, cancellations and settlements

On a modification, the entity continues to recognise at least the original grant-date fair value over the remaining vesting period, and recognises any incremental fair value granted (measured at the modification date) over the remaining vesting period. A modification that reduces fair value is ignored - the original expense continues. A cancellation is treated as an acceleration of vesting: the entity immediately recognises the amount that would otherwise have been recognised over the remainder of the vesting period.

IFRS vs Ind AS - Comparative Analysis
Aspect	IFRS / IAS position	Ind AS position (carve-out / carve-in)
Measurement	Fair value; grant-date for equity-settled.	Ind AS 102 - converged. (Note: previous Indian GAAP permitted the intrinsic value method, which materially understated ESOP cost.)
Regulatory overlay	None beyond the standard.	SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 govern listed-entity plans - trust structures, disclosures and limits, in addition to Ind AS 102 accounting.
Group share-based payments	Addressed in IFRS 2.	Identical treatment for parent-granted awards to subsidiary employees.