IFRS 2: Share-based payment

The International Accounting Standards Board (IASB) released International Financial Reporting Standard 2 (IFRS 2) to address the topic of share-based payments.

Often companies will compensate employees with shares of stock in addition to salary, in the effort to link company’s success with the employee’s. This standard was issued to ensure that all companies were capturing this information in the financial statements in a uniform and understandable way.

Why can this be such a substantial difference among companies? Some companies issue contingent shares based on performance to employees, they may issue stock options, or any other combination of share-based payment. As an investor, it is important to understand the potential impacts on how many shares are in play because the company’s earnings will ultimately be divided among its owners. The greater the number of shares owned by investors, the lower the earnings per share will be simply due to them having to be divided amongst more parties. Each of these different types of share-based payments affects the company’s financial position differently and in turn the owners should be informed by having the information available to understand how many shares are outstanding and could be in certain situations.

IFRS are principles based standards, rather than strict rules based standards that govern international accounting. IFRS standards differ from IAS standards in that they began being introduced in 2001, whereas IAS were produced prior to this date by the IASC, or the International Accounting Standards Committee. Therefore when an IFRS standard and an IAS standard conflict, the IFRS is generally more authoritative due to being more recent.

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