IFRS 2 Share Based Payments - Phantom Shares

All topics related to IFRS Standards.
Post Reply
Gman
Posts: 9
Joined: 28 Oct 2021, 15:23

IFRS 2 Share Based Payments - Phantom Shares

Post by Gman »

Hi,

A share based payment has been agreed (Phantom shares) that are dependent on a future event and the future value is unknown and cannot be predicted with a level of certainty.

Does the above 'Share based payment' need to be recognized in the financial statements (P+L and BS) on grant or are there any exemptions available to avoid having to recognise/fairvalue.

thanks
G
Leo
Posts: 908
Joined: 05 Apr 2020, 22:31

Re: IFRS 2 Share Based Payments - Phantom Shares

Post by Leo »

Need to be recognised P&L vs Liabilities.

It's a cash settled instrument.
User avatar
Marek Muc
Site Admin
Posts: 3226
Joined: 15 Oct 2018, 17:21
Contact:

Re: IFRS 2 Share Based Payments - Phantom Shares

Post by Marek Muc »

agreed with Leo, those future events are most likely vesting conditions, see this page for further detail:

https://ifrscommunity.com/knowledge-bas ... d-payment/
Gman
Posts: 9
Joined: 28 Oct 2021, 15:23

Re: IFRS 2 Share Based Payments - Phantom Shares

Post by Gman »

Thanks for the responses but I am still a little unclear.
Let me expand my query a little further.

Today there is an agreement in place that essentially states that if the business is sold or there is an IPO, that certain people will be issued with Phantom shares. (at the discretion of the board)

The vesting schedule begins on the grant date, but the grant date is only initiated on the 'realization event' i.e the IPO of sale of the business.

There is no indication of when the realization event will happen and may never happen.

It would be my interpretation that the recording of the liability and expenses in the P+L/BS should only happen when the 'realization' event takes place i.e when the IPO or share sale takes place.

Thanks for all your input.

G
User avatar
Marek Muc
Site Admin
Posts: 3226
Joined: 15 Oct 2018, 17:21
Contact:

Re: IFRS 2 Share Based Payments - Phantom Shares

Post by Marek Muc »

well those arrangements can get very complex, I would pay attention to para IG4 of IFRS 2, where the expense is recognised before the grant date (this seems to be your case at first glance)
JRSB
Trusted Expert
Posts: 1309
Joined: 01 Mar 2020, 01:10
Location: UK

Re: IFRS 2 Share Based Payments - Phantom Shares

Post by JRSB »

do you mean the 'vesting' date is on the IPO, rather than the grant
User avatar
Marek Muc
Site Admin
Posts: 3226
Joined: 15 Oct 2018, 17:21
Contact:

Re: IFRS 2 Share Based Payments - Phantom Shares

Post by Marek Muc »

No, IPO day could be the grant date, but that doesn't mean you cannot, or shouldn't, recognise share based payment expense before that date - see para IG4 of IFRS 2
Gman
Posts: 9
Joined: 28 Oct 2021, 15:23

Re: IFRS 2 Share Based Payments - Phantom Shares

Post by Gman »

Hi All,

I have read the standard again and specifically IG4 and has some further discussion with management and I have now some further info.

As mentioned previously this share based payment program is dependent on an IPO or company sale.
After further investigation there is also a service condition where employees are required to remain employed by the group for a 4 year period prior to the IPO/Sale.

Per IFRS 2 IG4 'requires the entity to recognise the services when received'
As the service condition only starts t-4years, then only at that point would a Share based payments liability be recorded.

There are no current indication that the IPO is likely to happen in the next 4 years or anytime in the near future.
As such we would find it almost impossible to determine a fair value of any future sale/IPO at this point.

It would be my interpretation that as today we would not need to record a share based payment liability or P+L Charge on our accounts.

Is this reasonable?

as always many thanks and hopefully one day ill be a contributor rather than an asker.
Leo
Posts: 908
Joined: 05 Apr 2020, 22:31

Re: IFRS 2 Share Based Payments - Phantom Shares

Post by Leo »

I think you might still have to recognize the plan regardless that the event will be realized or not. IPO falls into the category of 'market or other vesting condition". I've seen PS based on the fair value of the shares. So, if it's the case for you, you might have to perform a valuation and calculate the fair value of a share. The question you might ask is that if you have to include the IPO event into the estimation of the PS's grant date fair value or not.

Because this might be costly, maybe you could consult your auditors first and see what they think ?
User avatar
Marek Muc
Site Admin
Posts: 3226
Joined: 15 Oct 2018, 17:21
Contact:

Re: IFRS 2 Share Based Payments - Phantom Shares

Post by Marek Muc »

you can put it also this way: phantom shares will be granted to employees who are:
1. employed on the IPO day, and
2. have seniority of at least 4 years on that day

Now estimate how many of your current employees will satisfy these conditions are recognise share-based payment expense accordingly. If the IPO is a distant future and not very likely at this stage, the expense will be miniscule and you should be able not to recognise anything reasoning from materiality. But I would revisit these assumptions each year to see if this assessment still holds.
Leo
Posts: 908
Joined: 05 Apr 2020, 22:31

Re: IFRS 2 Share Based Payments - Phantom Shares

Post by Leo »

100% agree !
Post Reply