Exposure Draft
Guidance Note on Accounting for Share-based Payments

(Last date of comments: June 4, 2020)

Research Committee of the Institute of Chartered Accountants of India invites comments on any aspect of this Exposure Draft of the ‘Guidance Note on Accounting for Share-based Payments’. Comments are most helpful if they indicate the specific paragraph or group of paragraphs to which they relate, contain a clear rationale and, where applicable, provide a suggestion for alternative wording.

Comments should be submitted in writing to the Secretary, Research Committee, The Institute of Chartered Accountants of India, ICAI Bhawan, Post Box No. 7100, Indraprastha Marg, New Delhi – 110 002, to be received not later than June 4, 2020. Comments can also be sent by email at research@icai.in. Response are also invited specifically for the following questions:

Q1. The principles of GN 2005 apply only to share based payments made to employees. There is no specific guidance for share based payments made to non-employees. GN 2020 deals with all types of share-based payments including share-based payments made to non-employees (for example, customers or vendors). Do you agree with this scope extension in the revised GN? If not, please mention the reasons for the same.

Q2. The current GN 2005 permits the measurement based on intrinsic value or fair value method. Should the proposed GN allow a similar choice?

Q3. GN 2005 did not provide much guidance for accounting for group-wide share-based payment transactions. Therefore, the practice varied for accounting for the cost of any share-based payments granted by a parent to employees of a subsidiary or vice versa.GN 2020 deals extensively with group wide share-based payment transactions. Do you agree with this scope extension in the revised GN? If not, please mention the reasons for the same.

Guidance Note on Accounting for Share-based Payments

(The following is the text of the Guidance Note on Accounting for Share-based Payments, issued by the Institute of Chartered Accountants of India. This Guidance Note is applicable for entities that are not required to follow Indian Accounting Standards. Pursuant to the issuance of this, “Guidance Note on Accounting for Employee Share-based Payments” stands withdrawn)

Introduction

1. In a number of countries, shares and options now comprise the greatest element of the total remuneration package of senior personnel, a trend encouraged by the current consensus that it is a matter of good corporate governance to promote significant long-term shareholdings by senior management, so as to align their economic interests with those of shareholders. Such plans generally take the forms of Employee Stock Option Plans (ESOPs), Employee Stock Purchase Plans (ESPPs) and stock appreciation rights. ESOPs are plans under which an enterprise grants options for a specified period to its employees to purchase its shares at a fixed or determinable price. One advantage of shares and options as remuneration is that they need not entail any cash cost to the entity. ESPPs are plans under which the enterprise grants rights to its employees to purchase its shares at a stated price at the time of public issue or otherwise. Stock appreciation rights is a form of employee share based payments whereby the employees become entitled to a future cash payment or shares based on the increase in the price of the shares from a specified level over a specified period. Apart from using share-based payments to compensate employees for their services, such payments are also used by an employer as an incentive to the employees to remain in its employment or to reward them for their efforts in improving its performance. Unlisted companies, in particular, start-up companies, often give share-based compensation since they cannot afford to pay high salaries to their employees but are willing to share the future prosperity of the company. Several companies also offer share-based payments to nonemployees, including various vendors. As a result, there emerged an increasing consensus among investors that awards of shares and share options should be recognised as a cost in the financial statements.

2. Recognising the need for establishing uniform sound accounting principles and practices for all types of share-based payments, the Accounting Standards Board of the Institute of Chartered Accountants of India is in the process of developing an Accounting Standard covering various types of share- based payments. However, as the formulation of the Standard is likely to take some time, the Institute has decided to bring out this Guidance Note. Once the Accounting Standard dealing with Share- based Payments comes into force, this Guidance Note will automatically stand withdrawn.

Download Full text of Exposure Draft Guidance Note on Accounting for Share-based Payments

https://resource.cdn.icai.org/59389research48336.pdf

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