Share-based payments

Two draft Abstracts 'Scope of FRS 20 (IFRS 2)' (see Information Sheet 76) and 'FRS 20 (IFRS 2) - Group and Treasury Share Transactions' (see Information Sheet 77) were issued on 2 June for comment by 14 July. They set out respectively the texts of draft IFRIC Interpretations D16 and D17. Since FRS 20 is identical to IFRS 2, the UITF's current intention is to issue the final versions of the IFRIC Interpretations as UITF Abstracts.

FRS 20 (IFRS 2) 'Share-based Payment' requires transactions in which an entity receives goods or services as consideration for equity instruments of the entity (including shares or share options) to be recognised as expenses (or, if appropriate, assets) that should be measured at fair value.

The draft Abstract 'Scope of FRS 20 (IFRS 2)' addresses the situation when an entity issues equity instruments but cannot specifically identify goods or services received. If the identifiable consideration received appears to be less than the fair value of the equity instruments granted, this typically indicates that other consideration (ie goods or services) has been (or will be) received, in which case FRS 20 applies.

Under FRS 20 (IFRS 2), the accounting for a share-based payment transaction depends on whether it is treated as 'cash-settled' or 'equitysettled'. If the transaction is cashsettled, a liability is recognised by the entity receiving the goods or services (and the liability is remeasured to fair value at each reporting date until it is settled). If the transaction is equitysettled, the credit entry is within equity. The draft Abstract 'FRS 20 (IFRS 2) - Group and Treasury Share Transactions' addresses whether sharebased payment transactions should be accounted for as cash-settled or equitysettled in the following situations:

1. an entity either chooses or is required to buy equity instruments (eg treasury shares) to satisfy its obligations to its employees under a share-based payment arrangement;
2. an entity's shareholder provides the equity instruments of the entity that are needed to settle the share-based payment arrangement;
3. a subsidiary's employees are granted rights to equity instruments of the parent, where:
   1. the parent entity grants those rights direct to the subsidiary entity's employees, or
   2. the subsidiary entity grants those rights to its employees.

Employee share purchase plans

In December 2004, the IFRIC issued a draft Interpretation D11 'Changes in Contributions to Employee Share Purchase Plans'. It proposed that an employee withdrawing from a SAYE plan should be accounted for as a cancellation. This would have the effect that the whole of the charge that would have been recognised over the vesting period had the employee remained in the plan would be recognised immediately in the profit and loss account. The UITF issued a draft Abstract based on D11 in February, but concluded that the proposed accounting was unsatisfactory.

The IFRIC was unable to reach a consensus and referred the matter to the IASB. The IASB decided in May that an amendment should be proposed to IFRS 2 that would require such events to be accounted for as cancellations. The amendment would therefore impose the accounting proposed in D11. An exposure draft of the proposed amendment is expected shortly.

Waste electrical and electronic equipment ('WEEE')

In November 2004, the UITF issued a draft Abstract 'Liabilities arising from Participating in a Specific Market - Waste Electrical and Electronic Equipment', setting out the text of IFRIC D10. A final IFRIC Interpretation is expected to be issued shortly, in which the conclusions will be essentially the same as in D10.

The Interpretation, which the UITF has supported, addresses questions about when a liability for decommissioning of WEEE should be recognised under the model specified in the EU's WEEE Directive for attributing costs of recycling historical household equipment to producers who are currently participating in the market. The UK Government announced in March that it plans to make Regulations to transpose the WEEE Directive into law in summer 2005, to be implemented in January 2006.

The UITF has decided to issue an Abstract based on the IFRIC Interpretation, but that the Abstract will not be finalised until the applicable UK legislation has been published.

Emission Rights

In June 2005, the IASB decided to withdraw IFRIC 3 'Emission Rights' with immediate effect (the UITF announced in December that it would not issue a UITF Abstract based on IFRIC 3). The IASB also decided to reconsider in a more comprehensive way the accounting for cap and trade emission rights schemes. This will have regard to its project to amend IAS 20 'Accounting for Government Grants and Disclosure of Government Assistance', which is an important reference standard for accounting by participants in the EU Emissions Trading Scheme.