BUACC5934 FINANCIAL MANAGEMENT
AASB2 Share Based Payments
Major Assignment Summer Semester 2013
Discuss the following in relation to the standard:
1. What was the rationale for the introduction of an accounting standard covering share based transactions? The share-based transaction, such as share options for employees, was not attributed a cost in the past although the use of such equity instruments was widespread. As a result, the AASB 2 Share-based Payment was introduced to force entities to incur a cost the transaction. Moreover, the treatment of share-based payment transactions was very controversy before 2005 which made inter-firm comparison difficult. So the introduction of an accounting standard has become necessary to cover this issue.
2. Referring to the standard answer the following question:
a) Does a share based payment arrangements always relate to employees? No. It is very common that entities usually use share options for the purpose of employee remuneration. However the scope of the standard is much broader than this. Under AASB 2, the definition of share-based payment transaction indicates that a share-based payment arrangement only requires the exchange of goods or services or incurs an obligation to settle the transaction with the supplier when another group entity receives those goods or services. Consequently, the common share-based payment arrangements are not only related to employees but also related to external consultants or suppliers or shareholders.
b) When are transactions with employees outside the scope of AASB 2? It is not related to the receipt of goods or services; or the amount paid to the employee is not based on the market price of that entity’s equity instruments.
An entity makes a rights issue of shares to all shareholders, including employees who are shareholders. The transaction is an arrangement with employees in their capacity as owners of equity instruments, not in their capacity as employees. Therefore the transaction is not within the scope of AASB 2. Furthermore, if entity acquires goods as part of the net assets acquired, this should be considered as Business Combination under AASB 3.
Apply the Standard in accounting for all share-based payment transactions including: equity-settled share-based payment transactions; cash-settled share-based payment transactions; and transactions in which the entity receives or acquires goods or services and the terms of the arrangement provide either the entity or the supplier of those goods or services with a choice of whether the entity settles the transaction in cash or other assets) or by issuing equity instruments (AASB2, Scope2).
c) Are employee bonuses share based payment?
It depends. Shares, share options or other equity instruments are granted to employees as part of their remuneration package, in addition to a cash salary and other employment benefits. Usually, it is not possible to measure directly the services received for particular components of the employee’s remuneration package. It might also not be possible to measure the fair value of the total remuneration package independently, without measuring directly the fair value of the equity instruments granted. Furthermore, shares or share options are sometimes granted as part of a bonus arrangement, rather than as a part of basic remuneration, for example, as an incentive to the employees to remain in the entity’s employ or to reward them for their efforts in improving the entity’s performance. By granting shares or share options, in addition to other remuneration, the entity is paying additional remuneration to obtain additional benefits. Estimating the fair value of those additional benefits is likely to be difficult. Because of the difficulty of measuring directly the fair value of the services received, the entity shall measure the fair value of the employee services...
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