IFRS-2 and Indian Norms

How are the Indian norms different from those specified by the IFRS (International Financial Reporting Standards) in IFRS-2 `Share-based Payments'?

Though the ICAI's guidance note is largely similar to IFRS-2, there are certain critical aspects of share-based payments which are not touched by the Indian accounting guidance.

kinds of share-based payments : A critical difference between the Indian standard and its international counterpart is that the IFRS deals with all kinds of share-based payments, whereas the Indian guidance note applies only to employee share-based payments such as ESOPs and Employee Stock Purchase Plan (ESPP).

Share-based considerations for purchase of goods and services. : At present, there is no guidance available in India for arrangements where share-based considerations are given for purchase of goods and services. The IFRS goes one step further to discuss situations even where the goods or services received in exchange are not identifiable, like in cases where shares are granted to charitable institutions. The Indian framework would again be at a loss to deal with such a situation.

Group Shares Transactions : Further, the IFRS also contains guidance on treatment of stock options given to employees of a subsidiary or any other group company, commonly known as `Group Shares Transactions'. There is no guidance available in India for accounting of such transactions and the SEBI guidelines only require disclosures for these in the financials of both the parent and the subsidiary company.

Tax Once the IFRS is mandatorily adopted in India, a key matter relating to ESOP plans will emerge as a common issue across entities: the treatment of Fringe Benefit Tax (FBT) on ESOPs in case where a company claims reimbursement of such tax from the concerned employee. While one would tend to think that such an arrangement being in the nature of a reimbursement is best treated as a reimbursement of tax for the entity, there is an ongoing debate on the accounting treatment under the IFRS: Whether the IFRS will treat this arrangement more as a modification to the terms of the options, whereby the exercise price is increased to include the FBT element and then accounted for as a modification to the terms and conditions?

The ICAI's guidance note prescribes accounting depending on whether the liability would be `equity settled' or `cash settled', whereas SEBI's guideline does not differentiate between these two.