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What this Standard does (mechanically)
Sets the accounting rules entities must follow when they pay for goods or services by granting equity (shares or options) or by promising payments tied to the entity’s share price (share‑based payments). (Objective, para 1; Scope, para 2.)
Requires entities to recognise the goods or services received and to record a corresponding increase in equity (for equity‑settled awards) or a liability (for cash‑settled awards) when the goods are obtained or the services are rendered. (Recognition, paras 7–9.)
For awards settled in equity, usually measures the transaction at the grant‑date fair value of the equity instruments and recognises expense over the vesting period, adjusted for the number expected to vest. If fair value of the goods/services can be measured directly, that can be used instead. (Equity‑settled overview, paras 10–15, 19–21.)
For awards settled in cash (or with a cash component), measures and recognises a liability at fair value initially and remeasures that liability at each reporting date, with changes going through profit or loss. (Cash‑settled rules, paras 30–33D.)
Provides specific rules for: vesting and non‑vesting conditions (how to treat service, performance and market conditions), modifications (including repricing, cancellations and settlements), net settlement features for withholding tax, arrangements giving either party the choice of settlement, and share‑based payments among group entities (eg parent/subsidiary). (Paras 14–29, 33E–33H, 34–43A.)
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Direct links to the current provisions in AASB 2 - Share-based Payment - July 2015.
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| Compiled AASB Standard | AASB 2 |
|---|
Share-based Payment
This compiled Standard applies to annual periods beginning on or after 1 January 2022. Earlier application is permitted for annual periods beginning after 24 July 2014 but before 1 January 2022. It incorporates relevant amendments made up to and including 20 December 2021.
Prepared on 7 April 2022 by the staff of the Australian Accounting Standards Board.
Compilation no. 4
Compilation date: 31 December 2021
Obtaining copies of Accounting Standards
Compiled versions of Standards, original Standards and amending Standards (see Compilation Details) are available on the AASB website: www.aasb.gov.au.
Australian Accounting Standards Board
PO Box 204
Collins Street West
Victoria 8007
AUSTRALIA
Phone: (03) 9617 7600
E-mail: standard@aasb.gov.au
Website: www.aasb.gov.au
Other enquiries
Phone: (03) 9617 7600
E-mail: standard@aasb.gov.au
COPYRIGHT
© Commonwealth of Australia 2022
This compiled AASB Standard contains IFRS Foundation copyright material. Reproduction within Australia in unaltered form (retaining this notice) is permitted for personal and non-commercial use subject to the inclusion of an acknowledgment of the source. Requests and enquiries concerning reproduction and rights for commercial purposes within Australia should be addressed to The National Director, Australian Accounting Standards Board, PO Box 204, Collins Street West, Victoria 8007.
All existing rights in this material are reserved outside Australia. Reproduction outside Australia in unaltered form (retaining this notice) is permitted for personal and non-commercial use only. Further information and requests for authorisation to reproduce for commercial purposes outside Australia should be addressed to the IFRS Foundation at www.ifrs.org.
Contents
COMPARISON WITH IFRS 2
ACCOUNTING STANDARD
AASB 2 SHARE-BASED PAYMENT
from paragraph
Requires disclosure of the nature, extent and measurement methods of share‑based payment arrangements and the effects on profit or loss and the statement of financial position. (Disclosures, paras 44–52.)
Gives detailed measurement and valuation guidance in Appendix B and a range of illustrative examples and implementation guidance (IG) to show how the rules apply in common fact patterns (market vs non‑market performance conditions, early exercise, modifications, cash alternatives, group transactions, etc.). (Appendix B; IG1–IG24.)
Who this affects
All entities applying Australian Accounting Standards that enter into share‑based payment arrangements: listed companies and other reporting entities that grant shares, options, share appreciation rights, or promise cash amounts linked to share prices. (Scope, para 2.)
Separate‑entity financial statements within corporate groups: special paragraphs and guidance apply when one group entity grants awards but another receives the goods/services (paras 3A, 43A–43D; IG22A).
Tier‑2 (simplified disclosure) reporters have relief from full disclosure requirements (Appendix C, AusC1).
Why it matters (practical effects and incentives)
Who pays / who bears the cost: economically, the entity granting the award recognises the cost (expense and either an increase in equity or a liability) in its financial statements. That cost lowers reported profit (or increases liability) and, for equity awards, can dilute existing shareholders when shares are issued (paras 7, 10–11, 23, 29).
Who decides: management must choose valuation methods, estimate inputs (eg expected volatility, option life, probability of vesting), and decide classification where the contract allows alternatives (eg cash vs equity). Those measurement and judgement choices are governed by the Standard (paras 16–18; Appendix B; IG guidance). Auditors and regulators review those judgements.
Behaviour changes and substitution effects: because the Standard prescribes different measurement and remeasurement treatments for equity‑settled and cash‑settled awards, entities may have an incentive to design awards or settlement mechanics to achieve a preferred accounting classification (see rules on classification and modifications, paras 33–41, B44A–B44C). The Standard limits some of that choice (eg net‑settlement withholding tax feature does not change an equity classification where tax law obliges withholding — paras 33E–33H).
Compliance burden and implementation risk: the Standard requires fair‑value measurement (market price or valuation technique) and repeated estimation (grant‑date fair value, expected vesting, remeasurement of cash liabilities). That requires valuation models and data (Appendix B: inputs such as expected volatility, dividends, option life; paras 16–18, B6–B25). Smaller entities may face material compliance costs; Tier‑2 simplified disclosures (Appendix C) reduce but do not remove the valuation work.
Concentrated benefits, diffuse costs: direct benefits (the awards) typically accrue to specific employees or suppliers; the cost is borne by the reporting entity and ultimately affects owners/shareholders and possibly future cash flows. The Standard makes those costs visible in profit or loss and/or liabilities (paras 10–11; 30–33).
Trade‑offs and opportunity costs: management must trade off remuneration design choices (cash now vs equity later) with accounting and cash flow consequences (eg immediate expense recognition, potential remeasurement volatility for cash‑settled awards). The Standard also affects timing of expense recognition (eg service conditions recognised over vesting period; market conditions handled in valuation at grant date — paras 14–21).
Key mechanical clarifications and limits
Market conditions (eg share price targets) are included when estimating grant‑date fair value, and an employee who satisfies non‑market vesting conditions still generates recognition even if the market condition ultimately fails (para 21).
Non‑vesting conditions that are within the counterparty’s control and are not met are treated as cancellations (para 28A; IG15A).
If an entity cannot reliably estimate fair value for an equity grant (rare), an intrinsic‑value method applies with specified reversal rules (para 24).
Modifications that are beneficial to recipients give rise to incremental value to be recognised (paras 26–29; B42–B44); modifications that are detrimental to recipients generally do not reduce the original recognised amount (B44).
For group transactions, the accounting in separate financial statements depends on which entity has the obligation and whose equity instruments are involved (paras 43A–43D; B45–B61).
Where to look in the Standard for practical steps
Objective 1
Scope 2
Recognition 7
Equity-settled share-based payment transactions
Overview 10
Transactions in which services are received 14
Transactions measured by reference to the fair value of the equity instruments granted
Determining the fair value of equity instruments granted 16
Treatment of vesting conditions 19
Treatment of non-vesting conditions 21A
Treatment of a reload feature 22
After vesting date 23
If the fair value of the equity instruments cannot be estimated reliably 24
Modifications to the terms and conditions on which equity instruments were granted, including cancellations and settlements 26
Cash-settled share-based payment transactions 30
Treatment of vesting and non-vesting conditions 33A
Share-based payment transactions with a net settlement feature for withholding tax obligations 33E
Share-based payment transactions with cash alternatives 34
Share-based payment transactions in which the terms of the arrangement provide the counterparty with a choice of settlement 35
Share-based payment transactions in which the terms of the arrangement provide the entity with a choice of settlement 41
Share-based payment transactions among group entities (2009 amendments) 43A
Disclosures 44
Transitional provisions Aus52.1
Effective date 60
Withdrawal of Interpretations
Commencement of the legislative instrument
Withdrawal of AASB pronouncements Aus64.2
Appendices
A Defined terms
B Application guidance
C Australian simplified disclosures for Tier 2 entities
Implementation Guidance
COMPILATION DETAILS
Deleted IFRS 2 Text
available on the AASB website
Basis for Conclusions on IFRS 2
Australian Accounting Standard AASB 2 Share-based Payment (as amended) is set out in paragraphs 1 – Aus64.2 and Appendices A – C. All the paragraphs have equal authority. Paragraphs in bold type state the main principles. Terms defined in Appendix A are in italics the first time they appear in the Standard. AASB 2 is to be read in the context of other Australian Accounting Standards, including AASB 1048 Interpretation of Standards, which identifies the Australian Accounting Interpretations, and AASB 1057 Application of Australian Accounting Standards. In the absence of explicit guidance, AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors provides a basis for selecting and applying accounting policies.
Comparison with IFRS 2
AASB 2 Share-based Payment as amended incorporates IFRS 2 Share-based Payment as issued and amended by the International Accounting Standards Board (IASB). Australian‑specific paragraphs (which are not included in IFRS 2) are identified with the prefix “Aus”. Paragraphs that apply only to not-for-profit entities begin by identifying their limited applicability.
Tier 1
For-profit entities complying with AASB 2 also comply with IFRS 2.
Not-for-profit entities’ compliance with IFRS 2 will depend on whether any “Aus” paragraphs that specifically apply to not-for-profit entities provide additional guidance or contain applicable requirements that are inconsistent with IFRS 2.
Tier 2
Entities preparing general purpose financial statements under Australian Accounting Standards – Simplified Disclosures (Tier 2) will not be in compliance with IFRS Standards.
AASB 1053 Application of Tiers of Australian Accounting Standards explains the two tiers of reporting requirements.
Accounting Standard AASB 2
The Australian Accounting Standards Board made Accounting Standard AASB 2 Share-based Payment under section 334 of the Corporations Act 2001 on 24 July 2015.
This compiled version of AASB 2 applies to annual periods beginning on or after 1 January 2022. It incorporates relevant amendments contained in other AASB Standards made by the AASB up to and including 20 December 2021 (see Compilation Details).
Accounting Standard AASB 2
Share-based Payment
Objective
1 The objective of this Standard is to specify the financial reporting by an entity when it undertakes a share-based payment transaction. In particular, it requires an entity to reflect in its profit or loss and financial position the effects of share-based payment transactions, including expenses associated with transactions in which share options are granted to employees.
AusCF1 AusCF paragraphs and footnotes included in this Standard apply only to:
(a) not-for-profit entities; and
(b) for-profit entities that are not applying the Conceptual Framework for Financial Reporting (as identified in AASB 1048 Interpretation of Standards).
Such entities are referred to as ‘AusCF entities’. For AusCF entities, the term ‘reporting entity’ is defined in AASB 1057 Application of Australian Accounting Standards and Statement of Accounting Concepts SAC 1 Definition of the Reporting Entity also applies. For-profit entities applying the Conceptual Framework for Financial Reporting (as set out in paragraph Aus1.1 of the Conceptual Framework) shall not apply AusCF paragraphs or footnotes.
Scope
2 An entity shall apply this Standard in accounting for all share-based payment transactions, whether or not the entity can identify specifically some or all of the goods or services received, including:
(a) equity-settled share-based payment transactions,
(b) cash-settled share-based payment transactions, and
(c) 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,
except as noted in paragraphs 3A–6. In the absence of specifically identifiable goods or services, other circumstances may indicate that goods or services have been (or will be) received, in which case this Standard applies.
3 \[Deleted\]
3A A share-based payment transaction may be settled by another group entity (or a shareholder of any group entity) on behalf of the entity receiving or acquiring the goods or services. Paragraph 2 also applies to an entity that
(a) receives goods or services when another entity in the same group (or a shareholder of any group entity) has the obligation to settle the share-based payment transaction, or
(b) has an obligation to settle a share-based payment transaction when another entity in the same group receives the goods or services
unless the transaction is clearly for a purpose other than payment for goods or services supplied to the entity receiving them.
4 For the purposes of this Standard, a transaction with an employee (or other party) in his/her capacity as a holder of equity instruments of the entity is not a share-based payment transaction. For example, if an entity grants all holders of a particular class of its equity instruments the right to acquire additional equity instruments of the entity at a price that is less than the fair value of those equity instruments, and an employee receives such a right because he/she is a holder of equity instruments of that particular class, the granting or exercise of that right is not subject to the requirements of this Standard.
5 As noted in paragraph 2, this Standard applies to share-based payment transactions in which an entity acquires or receives goods or services. Goods includes inventories, consumables, property, plant and equipment, intangible assets and other non-financial assets. However, an entity shall not apply this Standard to transactions in which the entity acquires goods as part of the net assets acquired in a business combination as defined by AASB 3 Business Combinations, in a combination of entities or businesses under common control as described in paragraphs B1–B4 of AASB 3, or the contribution of a business on the formation of a joint venture as defined by AASB 11 Joint Arrangements. Hence, equity instruments issued in a business combination in exchange for control of the acquiree are not within the scope of this Standard. However, equity instruments granted to employees of the acquiree in their capacity as employees (eg in return for continued service) are within the scope of this Standard. Similarly, the cancellation, replacement or other modification of share-based payment arrangements because of a business combination or other equity restructuring shall be accounted for in accordance with this Standard. AASB 3 provides guidance on determining whether equity instruments issued in a business combination are part of the consideration transferred in exchange for control of the acquiree (and therefore within the scope of AASB 3) or are in return for continued service to be recognised in the post-combination period (and therefore within the scope of this Standard).
6 This Standard does not apply to share-based payment transactions in which the entity receives or acquires goods or services under a contract within the scope of paragraphs 8–10 of AASB 132 Financial Instruments: Presentation[\[1\]](#_ftn1) or paragraphs 2.4–2.7 of AASB 9 Financial Instruments.
6A This Standard uses the term ‘fair value’ in a way that differs in some respects from the definition of fair value in AASB 13 Fair Value Measurement. Therefore, when applying AASB 2 an entity measures fair value in accordance with this Standard, not AASB 13.
Recognition
7 An entity shall recognise the goods or services received or acquired in a share-based payment transaction when it obtains the goods or as the services are received. The entity shall recognise a corresponding increase in equity if the goods or services were received in an equity-settled share-based payment transaction, or a liability if the goods or services were acquired in a cash-settled share-based payment transaction.
8 When the goods or services received or acquired in a share-based payment transaction do not qualify for recognition as assets, they shall be recognised as expenses.
9 Typically, an expense arises from the consumption of goods or services. For example, services are typically consumed immediately, in which case an expense is recognised as the counterparty renders service. Goods might be consumed over a period of time or, in the case of inventories, sold at a later date, in which case an expense is recognised when the goods are consumed or sold. However, sometimes it is necessary to recognise an expense before the goods or services are consumed or sold, because they do not qualify for recognition as assets. For example, an entity might acquire goods as part of the research phase of a project to develop a new product. Although those goods have not been consumed, they might not qualify for recognition as assets under the applicable Standard.
Equity-settled share-based payment transactions
Overview
10 For equity-settled share-based payment transactions, the entity shall measure the goods or services received, and the corresponding increase in equity, directly, at the fair value of the goods or services received, unless that fair value cannot be estimated reliably. If the entity cannot estimate reliably the fair value of the goods or services received, the entity shall measure their value, and the corresponding increase in equity, indirectly, by reference to[\[2\]](#_ftn2) the fair value of the equity instruments granted.
11 To apply the requirements of paragraph 10 to transactions with employees and others providing similar services,[\[3\]](#_ftn3) the entity shall measure the fair value of the services received by reference to the fair value of the equity instruments granted, because typically it is not possible to estimate reliably the fair value of the services received, as explained in paragraph 12. The fair value of those equity instruments shall be measured at grant date.
12 Typically, 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, eg 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 received by reference to the fair value of the equity instruments granted.
13 To apply the requirements of paragraph 10 to transactions with parties other than employees, there shall be a rebuttable presumption that the fair value of the goods or services received can be estimated reliably. That fair value shall be measured at the date the entity obtains the goods or the counterparty renders service. In rare cases, if the entity rebuts this presumption because it cannot estimate reliably the fair value of the goods or services received, the entity shall measure the goods or services received, and the corresponding increase in equity, indirectly, by reference to the fair value of the equity instruments granted, measured at the date the entity obtains the goods or the counterparty renders service.
13A In particular, if the identifiable consi
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