Complete Share Based Payments Draft Guidance Details

Exposure Draft

Guidance Note on Accounting for Share-based Payments

(Last date of comments: June 4, 2020)

 Institute of Chartered Accountants of India  ICAI’s Research committee requested its members to send their comment regarding the aspects of the ’Guidance Note on Accounting for Share-based Payments’. They also said that it will be more helpful if their comment contains the targeted paragraph or group of paragraphs, clear rationale, the exact spot where it fits and any alternative wording if any.

The comment must be submitted in writing to the secretary at the following address.

Secretary, Research Committee, 

The Institute of Chartered Accountants of India, 

ICAI Bhawan, Post Box No. 7100, 

Indraprastha Marg, New Delhi – 110 002,

The deadline to receive the comment is 4th June 2020. Meanwhile, the comment can be also sent using the email at research@icai.in.

ICAI also Invited Responses to the Following Questions.

Q1. The principles of GN 2005 is only applicable to share-based payments made to employees, and for share-based payments made to non-employees, there is no specific guidance available. However, GN 2020 take care of all types of share-based payments whether it is employees or non-employees. So, Do you agree with this improvement introduced with the revised GN? If not, please share the reasons.

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

Q3. There is a lack of guidance for accounting for group-wide share-based payment transactions in GN 2005. That’s why there is a difference between practices for accounting for the cost of any share-based payments granted by the parent to the employees of a subsidiary or vice versa. However the revised GN, GN 2020 have proper guidance for group-wide share-based payment transactions. Do you agree with this improvement introduced with the revised GN? If not, please share the reasons.

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Guidance Note on Accounting for Share-based Payments

The below-engraved text is of the Guidance Note on Accounting for Share-based Payments, which was issued by the ICAI. It is applicable to all the entities/ business that doesn’t require to follow the Indian Accounting Standards. Imposing it will withdraw “Guidance Note on Accounting for Employee Share-based Payments”.

Introduction

#1. In various countries, the remuneration package of senior personnel has the biggest part in Share and Options so a trend is being promoted that good corporate governance has to promote significant long-term shareholding for senior Management, So the management can take care of their economic interests along with the shareholders. These types of plans usually consist of Employee Stock Option Plans (ESOPs), Employee Stock Purchase Plans (ESPPs) and stock appreciation rights. 

• When an enterprise grants temporary options to its employees to purchase its shares at a fixed price it is ESOPs Plans.
• Under ESPPs the enterprise provides rights to its employees to purchase its shares on stated price at the time of public issue or otherwise.
• Stock appreciation rights are something a type of employee share-based payments in which the employees will be eligible for a future cash payment or shares based as per the increase in the price of the shares for a certain period. It can be used to keep employees in its employment or to reward them.

Unlisted companies prefer share-based compensation due to the lack of finance for high salaries. Not just to employees to nonemployees too. Due to it, shares and share options need to be considered as a cost in the financial statements.

#2. After observing the need for uniform accounting principles and practices for each and every share-based payments, the Accounting Standards Board of ICAI is developing an Account Standard which will cover all the share-based payments. It is still under the process that’s why the authorities released the Guidance Note. When the revised one will be ready to come into action then the Guidance Note will be withdrawn. 

Full text of Exposure Draft Guidance Note on Accounting for Share-based Payments Can be accessed here