Explanatory Statement
Accounting Standard AASB 2016-5
Amendments to Australian Accounting Standards – Classification and Measurement of Share-based Payment Transactions
July 2016
EXPLANATORY STATEMENT
Standard Amended by AASB 2016-5
This Standard makes amendments to Accounting Standard AASB 2 Share-based Payment. These amendments arise from the issuance of International Financial Reporting Standard Classification and Measurement of Share-based Payment Transactions (Amendments to IFRS 2) by the International Accounting Standards Board (IASB) in June 2016.
Power to Make Amendments
Under subsection 33(3) of the Acts Interpretation Act 1901, where an Act confers a power to make, grant or issue any instrument of a legislative or administrative character (including rules, regulations or by-laws), the power shall be construed as including a power exercisable in the like manner and subject to the like conditions (if any) to repeal, rescind, revoke, amend, or vary any such instrument. Accordingly, the AASB has the power to amend the Accounting Standards that are made by the AASB as legislative instruments under the Corporations Act 2001.
Main Features of AASB 2016-5
Main Requirements
This Standard amends AASB 2 Share-based Payment to address:
(a) the accounting for the effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payments;
(b) the classification of share-based payment transactions with a net settlement feature for withholding tax obligations; and
(c) the accounting for a modification to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled.
Application Date
AASB 2016-5 applies to annual periods beginning on or after 1 January 2018. Earlier application is permitted.
References to Other AASB Standards
References in this Standard to the titles of other AASB Standards that are legislative instruments are to be construed as references to those other Standards as originally made and as amended from time to time and incorporate provisions of those Standards as in force from time to time.
Consultation Prior to Issuing this Standard
The AASB issued Exposure Draft ED 257 Classification and Measurement of Share-based Payment Transactions in November 2014 for comment by 25 February 2015. ED 257 incorporated IASB Exposure Draft ED/2014/5 Classification and Measurement of Share-based Payment Transactions (Proposed amendments to IFRS 2). Three submissions were received by the AASB in respect of the proposals in ED 257. There was general support from constituents for adopting the proposals, which would ensure that general purpose financial statements prepared by for-profit entities in accordance with AASB Standards would also comply with International Financial Reporting Standards. However, some concerns were raised regarding the scope of the amendments and transition requirements. The AASB considered the comments it received in finalising AASB 2016-5.
A Regulation Impact Statement (RIS) has not been prepared in connection with the issue of AASB 2016-5 as the amendments made do not have a substantial direct or indirect impact on business or competition.
Statement of Compatibility with Human Rights
Prepared in accordance with Part 3 of the
Human Rights (Parliamentary Scrutiny) Act 2011
Accounting Standard AASB 2016-5
Amendments to Australian Accounting Standards –
Classification and Measurement of Share-based Payment Transactions
Overview of the Accounting Standard
This Standard amends AASB 2 Share-based Payment to address:
(a) the accounting for the effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payments;
(b) the classification of share-based payment transactions with a net settlement feature for withholding tax obligations; and
(c) the accounting for a modification to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled.
Human Rights Implications
This Standard is issued by the AASB in furtherance of the objective of facilitating the Australian economy. It does not diminish or limit any of the applicable human rights or freedoms, and thus does not raise any human rights issues.
Conclusion
This Standard is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
Overview
The Accounting Standard AASB 2016-5, enacted in 2016, amends AASB 2 Share-based Payment to enhance the accounting practices for share-based payment transactions. This legislation was introduced to address the need for improved financial reporting standards in relation to share-based payments, specifically focusing on the measurement and classification of such transactions. The Australian Accounting Standards Board (AASB), which is responsible for issuing accounting standards in Australia, enacted this amendment under its authority granted by the Corporations Act 2001. The primary policy objective of AASB 2016-5 is to ensure that financial statements prepared in accordance with Australian Accounting Standards also comply with International Financial Reporting Standards, thereby enhancing the transparency and comparability of financial information.
Scope and Application
The AASB 2016-5 Amendments to Australian Accounting Standards – Classification and Measurement of Share-based Payment Transactions applies to for-profit entities that prepare general purpose financial statements. These entities are required to comply with AASB Standards and International Financial Reporting Standards. The amendments are designed to align Australian accounting standards with the International Financial Reporting Standard Classification and Measurement of Share-based Payment Transactions issued by the International Accounting Standards Board. The Standard applies to annual reporting periods beginning on or after 1 January 2018, with earlier application permitted. The AASB has the authority to make these amendments under the Corporations Act 2001, which empowers the AASB to create, repeal, amend, or vary legislative instruments such as accounting standards. The amendments aim to improve the accounting for share-based payment transactions by addressing specific areas such as the effects of vesting and non-vesting conditions on the measurement of cash-settled payments, the classification of share-based payment transactions with net settlement features for withholding tax obligations, and the accounting for modifications to the terms and conditions of share-based payments that change the classification from cash-settled to equity-settled.
Key Provisions
The AASB 2016-5 Accounting Standard, which amends AASB 2 Share-based Payment, introduces several significant changes to the way share-based payment transactions are accounted for in Australia. Section 3 of the Standard addresses the accounting for the effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payments. This means that entities will need to consider the impact of conditions attached to the payment, such as vesting periods, on the amount recognised in financial statements. Section 4 of the Standard changes the classification of share-based payment transactions with a net settlement feature for withholding tax obligations, requiring entities to classify these transactions as equity-settled if the net settlement feature is not exercised by the entity. Section 5 deals with the accounting for modifications to the terms and conditions of a share-based payment that change the classification of the transaction from cash-settled to equity-settled. Entities must now account for such modifications in a manner consistent with the new classification.
Entities governed by AASB 2016-5 must ensure compliance with the new requirements by adjusting their accounting policies and practices accordingly. This includes modifying their financial reporting processes to account for vesting and non-vesting conditions, reclassifying certain share-based payment transactions, and implementing changes in the treatment of modifications to share-based payment arrangements. The Standard applies to annual periods beginning on or after 1 January 2018, but earlier application is permitted, meaning entities can choose to adopt the new requirements in earlier reporting periods if they wish.
The AASB 2016-5 Accounting Standard does not explicitly outline specific offences or penalties for non-compliance. However, under the Corporations Act 2001, entities that fail to comply with accounting standards may face legal consequences, including fines and other penalties. The exact penalties depend on the severity and nature of the non-compliance and are determined by the relevant regulatory authorities, such as the Australian Securities and Investments Commission (ASIC). Additionally, non-compliance with the Standard could lead to financial misstatements, which may result in reputational damage and loss of investor confidence.
In summary, AASB 2016-5 introduces important amendments to the accounting for share-based payment transactions, requiring entities to adjust their practices to reflect the new requirements. While the Standard does not specify particular penalties for non-compliance, entities are expected to adhere to the new rules to avoid potential legal and financial repercussions under the Corporations Act 2001.