• the subsidiary is directly owned by the parent company (see 12.2.1 below in
relation to intermediate parent companies).
Scenario Who
grants
Which entity
Who settles
On which entity’s
Award
the award?
receives the goods
the award?
shares is the award
settled in
or services?
based?
shares or
cash?
1 Parent
Subsidiary
Parent
Parent
Shares
2 Shareholder Subsidiary
Shareholder
Parent
Shares
3 Subsidiary
Subsidiary
Subsidiary
Parent
Shares
4 Subsidiary
Subsidiary
Subsidiary
Subsidiary
Shares
5 Parent
Subsidiary
Parent
Subsidiary
Shares
6 Parent
Subsidiary
Parent
Parent
Cash
7 Shareholder Subsidiary
Shareholder
Parent
Cash
Scenario 1
Parent awards equity shares in Parent to employees of Subsidiary in exchange for
services to Subsidiary. Parent settles the award with the employees of Subsidiary.
[IFRS 2.43B-43C, B52(a), B53-B54].
Consolidated financial statements of Parent
Under the definition of ‘share-based payment transaction’, ‘the entity [i.e. the
Parent group] ... receives goods or services ... in a share-based payment
arrangement ...’. A share-based payment arrangement includes ‘an agreement
between the entity ... and another party (including an employee) that entitles the
other party to receive ... equity instruments ... of the entity ...’.
The transaction is classified as an equity-settled transaction because it is settled in
an equity instrument of the group.
2522 Chapter 30
Separate financial statements of Parent
Under the definition of ‘share-based payment transaction’, ‘the entity [i.e. the
Parent as a single entity] ... incurs an obligation to settle the transaction with the
supplier in a share-based payment arrangement when another group entity
receives those goods or services’.
The transaction is classified as an equity-settled transaction because it is settled in
an equity instrument of Parent.
Subsidiary
Under the definition of ‘share-based payment transaction’, ‘the entity [i.e.
Subsidiary] ... receives goods or services ... in a share-based payment arrangement
...’. A ‘share-based payment arrangement’ includes ‘an agreement between ...
another group entity [i.e. Parent] ... and another party (including an employee) that
entitles the other party to receive ... equity instruments of ... another group entity’.
The transaction is classified as an equity-settled transaction because Subsidiary
‘has no obligation to settle the transaction with the supplier’.
Even if Subsidiary is not a party to the agreement with its employees, it
nevertheless records a cost for this transaction. In effect, the accounting treatment
is representing that Subsidiary has received a capital contribution from Parent,
which Subsidiary has then ‘spent’ on employee remuneration. This treatment is
often referred to as ‘push-down’ accounting – the idea being that a transaction
undertaken by one group entity (in this case, Parent) for the benefit of another
group entity (in this case, Subsidiary) is ‘pushed down’ into the financial statements
of the beneficiary entity.
Scenario 2
Shareholder awards equity shares in Parent to employees of Subsidiary in exchange for
services to Subsidiary. Shareholder settles the award with the employees of Subsidiary.
[IFRS 2.B48(b)].
Consolidated financial statements of Parent
Under the definition of ‘share-based payment transaction’, ‘the entity [i.e. the
Parent group] ... receives goods or services ... in a share-based payment
arrangement’. A ‘share-based payment arrangement’ includes ‘an agreement
between ... any shareholder ... and another party (including an employee) that
entitles the other party to receive ... equity instruments (including shares or share
options) of the entity...’.
The transaction is classified as an equity-settled transaction, because the Parent
group ‘has no obligation to settle the transaction with the supplier’.
Separate financial statements of Parent
Scenario 2 is not within the scope of IFRS 2 for the separate financial statements
of Parent, because Parent (as a separate entity) receives no goods or services, nor
does it settle the transaction.
Share-based
payment
2523
Subsidiary
Under the definition of ‘share-based payment transaction’, ‘the entity [i.e.
Subsidiary] ... receives goods or services ... in a share-based payment arrangement’.
A ‘share-based payment arrangement’ includes ‘an agreement between ... any
shareholder of any group entity [i.e. Shareholder] ... and another party (including
an employee) that entitles the other party to receive equity instruments of ...
another group entity [i.e. Parent]’.
The transaction is classified as an equity-settled transaction, because Subsidiary
‘has no obligation to settle the transaction with the supplier’.
IFRS 2 explicitly does not address the accounting treatment for such a transaction
within the financial statements of a shareholder that is not a group entity. [IFRS 2.BC22G].
We discuss at 12.9 below the accounting treatment of such transactions in the financial
statements of a shareholder that is an investor in a joint venture or associate.
Scenario 3
Subsidiary awards equity shares in Parent to employees of Subsidiary in exchange for
services to Subsidiary. Subsidiary settles the award with the employees of Subsidiary.
[IFRS 2.43B, B52(b), B55].
Consolidated financial statements of Parent
Under the definition of ‘share-based payment transaction’, ‘the entity [i.e. the
Parent group] ... receives goods or services ... in a share-based payment
arrangement’. A ‘share-based payment arrangement’ includes ‘an agreement
between the entity ... and another party (including an employee) that entitles the
other party to receive ... equity instruments (including shares or share options) of
the entity’.
The transaction is classified as an equity-settled transaction, because the Parent
group ‘receives goods or services as consideration for its own equity instruments
(including shares or share options)...’.
Separate financial statements of Parent
Scenario 3 is not within the scope of IFRS 2 for the separate financial statements
of Parent, because Parent (as a separate entity) receives no goods or services, nor
does it settle the transaction.
Subsidiary
Under the definition of ‘share-based payment transaction’, ‘the entity [i.e. Subsidia
ry]
... receives goods or services ... in a share-based payment arrangement’. A ‘share-
based payment arrangement’ includes ‘an agreement between ... [a] group entity [i.e.
Subsidiary] ... and another party (including an employee) that entitles the other party
to receive equity instruments of ... another group entity [i.e. Parent]’.
The transaction is classified as a cash-settled transaction because Subsidiary has
the obligation to settle the award with equity instruments issued by Parent – i.e. a
financial asset in Subsidiary’s separate financial statements – rather than with
Subsidiary’s own equity instruments.
2524 Chapter 30
However, for the approach in this Scenario to apply, it must be the case that
Subsidiary grants the award as a principal rather than as agent for Parent and
Subsidiary has the obligation to settle. If Subsidiary appears to be granting an award
but is really doing so only on the instructions of Parent, as will generally be the
case in certain jurisdictions, then the approach in Scenario 1 above is more likely
to apply. This is discussed in more detail at 12.2.5.B below.
Scenario 4
Subsidiary awards equity shares in Subsidiary to employees of Subsidiary in exchange
for services to Subsidiary. Subsidiary settles the award with the employees
of Subsidiary. [IFRS 2.43B, B49].
Consolidated financial statements of Parent
Under the definition of ‘share-based payment transaction’, ‘the entity [i.e. the
Parent group] ... receives goods or services ... in a share-based payment
arrangement’. A share-based payment arrangement includes ‘an agreement
between the entity ... and another party (including an employee) that entitles the
other party to receive ... equity instruments ... of the entity ...’.
The transaction is classified as an equity-settled transaction, because it is settled in
an equity instrument of the group. In the consolidated financial statements of
Parent, shares of Subsidiary not held by Parent are a non-controlling interest,
classified as equity (see Chapter 7 at 4).
Separate financial statements of Parent
Scenario 4 is not within the scope of IFRS 2 for the separate financial statements
of Parent, because Parent (as a separate entity) receives no goods or services, nor
does it settle the transaction.
Subsidiary
Under the definition of ‘share-based payment transaction’, ‘the entity [i.e.
Subsidiary] ... receives goods or services ... in a share-based payment arrangement’.
The transaction is classified as an equity-settled transaction, because it is settled in
an equity instrument of Subsidiary.
Scenario 5
Parent awards equity shares in Subsidiary to employees of Subsidiary in exchange for
services to Subsidiary. Parent settles the award with the employees of Subsidiary.
[IFRS 2.43B-43C, B50].
Consolidated financial statements of Parent
Under the definition of ‘share-based payment transaction’, ‘the entity [i.e. the
Parent group] ... receives goods or services ... in a share-based payment
arrangement’. A share-based payment arrangement includes ‘an agreement
between the entity ... and another party (including an employee) that entitles the
other party to receive ... equity instruments of the entity ...’.
Share-based
payment
2525
The transaction is classified as an equity-settled transaction, because it is settled in
an equity instrument of the group. In the consolidated financial statements of
Parent, shares of Subsidiary not held by Parent are a non-controlling interest,
classified as equity (see Chapter 7 at 4).
Separate financial statements of Parent
Under the definition of ‘share-based payment transaction’, ‘the entity [i.e. the Parent as
a single entity] ... incurs an obligation to settle the transaction with the supplier in a
share-based payment arrangement when another group entity [i.e. Subsidiary] receives
those goods or services’. The transaction is a share-based payment arrangement for
Subsidiary (see below) and the consolidated financial statements of Parent (see above).
For Parent, the transaction is classified as a cash-settled transaction, because it is
settled not in an equity instrument issued by Parent, but in an equity instrument
issued by a subsidiary and held by Parent – i.e. a financial asset in Parent’s separate
financial statements.
Subsidiary
Under the definition of ‘share-based payment transaction’, ‘the entity [i.e.
Subsidiary] ... receives goods or services ... in a share-based payment arrangement’.
A ‘share-based payment arrangement’ includes ‘an agreement between ... another
group entity [i.e. Parent] ... and another party (including an employee) that entitles
the other party to receive equity instruments of the entity...’.
The transaction is classified as an equity-settled transaction, because Subsidiary
‘has no obligation to settle the transaction with the supplier’.
Scenario 6
Parent awards cash based on the value of shares in Parent to employees of Subsidiary
in exchange for services to Subsidiary. Parent settles the award with the employees of
Subsidiary. [IFRS 2.43C, B56-B58].
Consolidated financial statements of Parent
Under the definition of ‘share-based payment transaction’, ‘the entity [i.e. the
Parent group] ... receives goods or services ... in a share-based payment
arrangement’. A ‘share-based payment arrangement’ includes ‘an agreement
between the entity ... and another party (including an employee) that entitles the
other party to receive ... cash ... of the entity ... based on the price (or value) of
equity instruments ... of the entity ...’.
The transaction is classified as a cash-settled transaction, because it is settled in
cash of the group.
Separate financial statements of Parent
Under the definition of ‘share-based payment transaction’, ‘the entity [i.e. the
Parent as a single entity] ... incurs an obligation to settle the transaction with the
supplier in a share-based payment arrangement when another group entity [i.e.
Subsidiary] receives those goods or services’.
2526 Chapter 30
The transaction is classified as a cash-settled transaction, because it is settled in
cash of Parent.
Subsidiary
IFRS 2 contains detailed guidance for the accounting treatment of such
transactions by the employing subsidiary (see 12 below), from which it may
reasonably be inferred that the IASB intended them to be in the scope of IFRS 2
for the subsidiary.
However, this is strictly not the case when the drafting of IFRS 2 is examined
closely. In order to be a share-based payment transaction (and therefore in the
scope of IFRS 2) for the reporting entity, a transaction must also be a share-based
payment arrangement. A share-based payment arrangement is defined as one in
which the counterparty receives (our emphasis added):
• equity of the entity or any other group entity, or
• cash or other assets of the entity.
As drafted, the definition has the effect that a transaction
settled in equity is in the
scope of IFRS 2 for a reporting entity, whether the equity used to settle is the
entity’s own equity or that of another group entity. Where a transaction is settled
in cash, however, the definition has the effect that a transaction is in the scope of
IFRS 2 for a reporting entity only when that entity’s own cash (or other assets) is
used in settlement, and not when another group entity settles the transaction.
However, given the guidance referred to above in IFRS 2 for the accounting
treatment for the reporting entity of transactions settled in cash by another group
entity, we believe that the exclusion of such transactions from the definition of
‘share-based payment arrangement’ should be disregarded as a drafting slip.
The transaction is classified as an equity-settled transaction by Subsidiary, because
Subsidiary ‘has no obligation to settle the transaction with the supplier’.
Scenario 7
Shareholder awards cash based on the value of shares in Parent to employees of
Subsidiary in exchange for services to Subsidiary. Shareholder settles the award with
the employees of Subsidiary.
For the reasons set out in Scenario 6 above, this transaction is not strictly in the scope of
IFRS 2 as drafted either for the consolidated or separate financial statements of Parent or
for the individual financial statements of Subsidiary. As noted in Scenario 6 above, the
definition of ‘share-based payment arrangement’ as drafted excludes any arrangement
that is settled in cash by a party other than the reporting entity. Moreover, whilst IFRS 2
gives detailed guidance that effectively appears to ‘over-ride’ the definition in respect of
International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards Page 503
