This free, guided checker walks your finance team through the key decision points for IFRS 2 Share-based Payment Modification and Cancellation. Answer a few questions to see the likely treatment and the evidence to document.
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This tool is a high-level IFRS screening aid for general information only and is not accounting, audit or legal advice. Conclusions require entity-specific evidence and judgement - confirm the treatment with your advisor.
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Modifications change the terms of an award; cancellations occur when the entity or counterparty terminates the arrangement before vesting; replacements grant new awards in exchange for cancelled awards under IFRS 2.26. As a minimum, the entity always recognizes the grant-date fair value of the original award unless a non-market vesting condition fails (IFRS 2.27).
No modification, cancellation, or replacement occurred; continue standard IFRS 2 grant-date recognition over the original vesting period (IFRS 2.10-15).
Official guidance: IFRS issued standards
A modification changes terms of an existing award; a cancellation removes the award before vesting; a replacement grants a new award concurrently with cancellation of the original under IFRS 2.26 and IFRS 2.28. A new award granted and identified as a replacement for a cancelled award is accounted for as a modification, not a fresh grant (IFRS 2.28(c)).
Classify the change as a modification, cancellation, or replacement before applying the IFRS 2.27-28 measurement rules (IFRS 2.26).
Official guidance: IFRS issued standards
Modification accounting applies to both equity-settled and cash-settled awards but measurement differs; equity-settled modifications use grant-date fair value while cash-settled modifications remeasure at modification date. For equity-settled awards, incremental fair value is measured at the modification date (IFRS 2.27; Appendix B); cash-settled awards continue to remeasure the liability to fair value each period (IFRS 2.30).
Establish whether the original award is equity-settled or cash-settled before applying the modification rules, since measurement differs (IFRS 2.10; IFRS 2.30).
Official guidance: IFRS issued standards
The incremental fair value is the difference between the fair value of the modified award and the original award, both measured at the modification date under IFRS 2.27 and Appendix B paragraph B43. Only beneficial modifications generate incremental expense; a non-beneficial modification is accounted for as if it had not occurred (IFRS 2.B44).
Measure incremental fair value at the modification date as the modified award fair value less the original award fair value (IFRS 2.27; IFRS 2.B43).
Official guidance: IFRS issued standards
Incremental fair value from a modification is recognized over the period in which the additional services are rendered, including any period added by the modification under IFRS 2.27 and IFRS 2.B43. If the modification shortens vesting, accelerate the remaining incremental amount; if it lengthens vesting, spread it over the extended period.
Recognize the incremental fair value over the remaining vesting period, including any additional service period the modification adds (IFRS 2.B43).
Official guidance: IFRS issued standards
For equity-settled modifications, the entity continues to recognize the original grant-date fair value over the original vesting period unless the modification reduces fair value under IFRS 2.27. A modification that reduces fair value or is otherwise not beneficial is ignored: the entity keeps recognizing the original charge as if no modification had occurred (IFRS 2.B44).
Continue recognizing the original grant-date fair value over the original vesting period in addition to the incremental modification amount (IFRS 2.27; IFRS 2.B44).
Official guidance: IFRS issued standards
When an entity cancels an equity-settled award, it recognizes immediately the amount that would otherwise have been recognized over the remainder of the vesting period under IFRS 2.28(a). Any payment made on cancellation is a repurchase of equity, with any excess over the award's fair value at the repurchase date recognized as an expense (IFRS 2.28(b)).
Use the interactive tool above to see how this applies to your situation.
Official guidance: IFRS issued standards
When a new award is granted concurrently with cancellation of the original, IFRS 2.28(c) treats the replacement as a modification; incremental fair value is the difference between the replacement award fair value and the net fair value of the cancelled award at the replacement date, recognized over any additional service period. If the new award is not identified as a replacement, it is a new grant.
Account for the replacement award as a modification of the original grant, not as a wholly new grant, using the net-fair-value incremental measure (IFRS 2.28(c)).
Official guidance: IFRS issued standards
Changes to non-market vesting conditions affect the number of awards expected to vest; market conditions are incorporated in fair value at grant or modification date under IFRS 2.19 and IFRS 2.21. Removing or relaxing a vesting condition is a beneficial modification measured through incremental fair value (IFRS 2.B43), while a non-market miss simply reduces the number that vest.
Revise expected vesting for non-market condition changes without remeasuring grant-date fair value, and reflect market conditions in fair value (IFRS 2.19; IFRS 2.21).
Official guidance: IFRS issued standards
Modification and cancellation accounting results in expense recognition in profit or loss with a credit to equity for equity-settled awards or liability for cash-settled awards under IFRS 2.7 and IFRS 2.30. Any cash paid on cancellation up to the award's fair value is a deduction from equity; any excess over fair value is an expense (IFRS 2.28(b)).
Post the modification and cancellation entries to profit or loss with a credit to equity for equity-settled awards or to the liability for cash-settled awards (IFRS 2.7; IFRS 2.30).
Official guidance: IFRS issued standards
IFRS 2.44 requires disclosure of the nature and extent of share-based payment arrangements including terms of modifications, cancellations, and their effect on recognized expense. IFRS 2.45 requires a reconciliation of options outstanding, and IFRS 2.46-47 the basis for measuring fair value of modified awards.
Modification accounting and IFRS 2.44-45 disclosures are complete for the period (IFRS 2.44). Prepare the modification and cancellation disclosures within the share-based payment note, including terms and expense effect (IFRS 2.44-45).
Official guidance: IFRS issued standards
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