🧾 International Financial Reporting Standard No. (2): Share-based Payments
📘 First: General Introduction
International Financial Reporting Standard No. (2) (IFRS 2) is one of the core standards aimed at achieving transparency in the disclosure of transactions involving share-based payments, whether provided to employees or to other parties in exchange for services or goods.
The standard requires companies to recognize the fair value of share-based payments as an expense in the financial statements, to ensure a fair presentation of the entity's performance and the compensation of its employees.
🎯 Second: Objective of the Standard
The objective of the standard is to ensure that the entity recognizes the goods or services received in exchange for equity instruments or cash payments based on the value of the shares,
and that these transactions are presented in the financial statements accurately and transparently.
🧩 Third: Scope of Application
IFRS 2 applies to all transactions in which goods or services are exchanged for equity instruments (such as shares or options) or cash amounts based on the share price.
It does not apply to transactions covered by another standard such as:
Business combinations (IFRS 3)
Transactions with shareholders acting as equity holders (IAS 32 and IAS 39)
💡 Fourth: Types of Transactions Covered by IFRS 2
Share-based payments with equity instruments:
Such as granting employees options to purchase shares in the future at a specified price.
Cash-settled share-based payments:
Where cash amounts are paid to employees based on the increase in the share price.
Transactions that can be settled in cash or shares:
Which are those where the party has the right to choose the method of settlement.
📊 Fifth: Accounting Measurement
1. At the grant date:
The fair value of the granted instrument (especially for employees) is determined using financial valuation models such as the Black-Scholes model.
2. Expense recognition:
The cost of the grant is distributed over the period in which the rights are earned (vesting period), so it is recognized as an expense in the income statement against an increase in equity.
3. Modifications:
If a stock option expires or is canceled before it vests, the recognition of the remaining cost is halted.
🧮 Sixth: Accounting treatment for cash payments
In the case of cash payments based on shares, aliability is recognizedin the balance sheet instead of equity, and the liability is remeasured at fair value in each period until final settlement.
📢 Seventh: Required disclosures
The standard requires disclosure of:
The nature and type of share-based payments.
The number and date of grants, and exercise prices.
The methods used to estimate fair value.
The financial impact on profits and equity.
🧭 Eighth: Importance of the standard in the business environment
IFRS 2 is an important tool to ensurefairness in the assessment of compensation and bonus costs,
and it helps investors and financial analysts understand the impact of stock incentives on the company's profitability and market value.
📚 References
IFRS Foundation (2024).International Financial Reporting Standard 2 – Share-based Payment.
Deloitte IFRS in Focus (2024): Overview of IFRS 2 Requirements.
EY IFRS Manual (2023): Share-based Payments Accounting.
KPMG Insights (2024): IFRS 2 Practical Application Guide.
✅ Checklist for applying International Financial Reporting Standard No. (1): First-time adoption of International Financial Reporting Standards – IFRS 1
📋 Purpose of the checklist
This checklist aims to assist companies that are applying the international standards for the first time in identifying the necessary procedures and steps to ensure correct and complete application in accordance with IFRS 1.
🧾 First: General requirements
| Item | Verification | Notes |
|---|---|---|
| Determine the transition date to IFRS (the first day of the first comparative period) | ☐ | |
| Prepare the first financial statements in accordance with IFRS, including: the opening statement of financial position | ☐ | |
| Ensure that all applicable standards are the standards in effect at the date of preparing the first financial statements | ☐ |
🧭 Second: Opening statement of financial position
| Item | Verification | Notes |
|---|---|---|
| Reclassify assets and liabilities according to IFRS requirements | ☐ | |
| Recognize all assets and liabilities required under IFRS | ☐ | |
| Exclude any assets or liabilities not permitted under IFRS | ☐ | |
| Measure items at fair value when necessary (optional under the standard) | ☐ |
🧮 Third: Adjustments and disclosures
| Item | Verification | Notes |
|---|---|---|
| Prepare a reconciliation of retained earnings between local standards and IFRS | ☐ | |
| Prepare a reconciliation of total comprehensive income for the comparative period | ☐ | |
| Disclose the new adopted accounting policies | ☐ | |
| Clarify the exceptions and exemptions applied under IFRS 1 | ☐ |
🧠 Fourth: Key exemptions
| Exemption | Description | Was it applied? |
|---|---|---|
| Use of fair value as deemed cost for fixed assets | The standard allows fair value to be considered as carrying amount at the date of transition. | ☐ |
| No restatement of previous mergers. | Merger results can be retained as they are. | ☐ |
| No recalculation of cumulative foreign currency differences. | ☐ |
📄 Fifth: Disclosure in the first financial statements.
| Item | Verification | Notes |
|---|---|---|
| Full disclosure of the impact of the transition on the financial statements. | ☐ | |
| Presentation of comparison tables between local and international standards. | ☐ | |
| Mention all recently adopted accounting policies. | ☐ |
📘 Conclusion
The application of IFRS 1 and IFRS 2 represents a significant step towards financial transparency and reliability,
and helps companies enhance investor and analyst confidence by providing accurate financial information that complies with international best practices.