Financial Reporting Committee International Accounting Standards ...

International Accounting Standards Board
30 Cannon Street
London
EC4M 6XH
e-mail: ifric@iasb.org
Dear Sir or Madam
Financial Reporting Committee
12 May 2008
Exposure Draft “Amendments to IFRS 2 Share-based Payment and IFRIC 11 IFRS 2 –
Group and Treasury Share Transactions”
We are pleased to submit our comments on the above proposals.
Who we are
The Hundred Group of Finance Directors represents the views of the finance directors of the
UK’s largest companies drawn largely, but not entirely, from the constituents of the FTSE100
Index. Our members are the finance directors of companies whose market capitalisation
collectively represents over 80% of companies listed on the London Stock Exchange. Views
expressed in this letter are those of The Hundred Group of Finance Directors but are not
necessarily those of our individual members or their respective employers.
Summary of our views
As the Board will recall, we did not fully support IFRIC11 (see our letter dated 18 July 2005).
However, as requested by the Board, we have restricted our comments to matters discussed
in the current exposure draft. While we remain uncomfortable with IFRIC11, we have
therefore commented on the current exposure draft on the basis of its consistency with the
principles underlying IFRIC11.
On this basis, we broadly support the proposals.
That said, however, we believe that an opportunity has been missed to clarify the scope of
IFRIC11 and the principles on which it is based (which do not come across clearly in the
existing interpretation) and to address the accounting for intra-group payment arrangements
requiring a subsidiary to reimburse its parent for obligations that it has assumed with regard
to the subsidiary’s employees.
Page 1 of 3

Responses to specific questions
Question 1
Specifying how a subsidiary that receives goods or services from its suppliers
(including employees) should account for cash-settled share-based payment
arrangements described in new paragraph 3A of IFRIC 11
The proposed amendments specify that:
a) in the financial statements of a subsidiary that receives goods or services from
its suppliers under the arrangements described in new paragraph 3A of
IFRIC11, the subsidiary should apply IFRS2 to account for the transactions with
its suppliers. In other words, in the financial statements of the subsidiary, such
cash-settled share-based payments are within the scope of IFRS2 (see new
paragraph 3A of IFRS2 and new paragraph 11A of IFRIC11).
Do you agree with the proposal? If not, why?
We agree that the arrangements described in new paragraph 3A of IFRIC 11 should fall
within the scope of IFRS2.
We suggest that the proposals should be re-drafted to make it clear (as we expect is the
Board’s intention) that situations in which a subsidiary incurs a liability to make cash
payments to its employees based on the price of the equity instruments of its parent are also
within the scope of IFRS2.
We also suggest that IFRIC 11 should be re-worded to make it clear that its principles apply
to arrangements in which the parent or another group entity enters into share-based payment
transactions with the employees of a subsidiary or in which a subsidiary enters into sharebased
payment transactions involving or that are linked to the price of the equity instruments
of the parent or another group entity.
b) the subsidiary should measure the goods or services received from its
suppliers in accordance with the requirements applicable to cash-settled sharebased
payment transaction, as set out in IFRS2 (see new paragraph 11B of
IFRIC11)
Do you agree with the proposal? If not, why?
Where a parent grants rights to its equity instruments to the employees of its subsidiary, the
equity instruments granted are not the equity instruments of the subsidiary and the subsidiary
has no obligation to transfer cash or other assets to the employees. In this scenario, IFRIC
considered that the equity-settled basis of accounting in the subsidiary was more consistent
with the principles of IFRS2 than the cash-settled basis (because the parent would account
for the awards on an equity-settled basis).
Where a parent incurs an obligation to make cash payments to the employees of a
subsidiary based on the price of its equity instruments or the equity instruments of the
subsidiary, the subsidiary similarly has no obligation to transfer cash or other assets to the
employees. We therefore support the proposal on the basis that in this scenario the cashsettled
basis of accounting in the subsidiary is more consistent with the principles of IFRS2
than the equity-settled basis (because the parent would account for the awards on a cashsettled
basis).
Page 2 of 3

While it does seem a little odd at first glance to reflect the compensation expense in relation
to a cash-settled share-based payment arrangement as a capital contribution, we concur with
the proposal because it is consistent with the equity-settled scenario (because in each case
the parent is incurring a liability in relation to services provided to the subsidiary which would
otherwise have been incurred by the subsidiary).
We would expect that in situations in which a subsidiary incurs a liability to make cash
payments to its employees based on the price of the equity instruments of its parent it would
be consistent with the principles of IFRS2 if the subsidiary were required to account for the
awards on a cash-settled basis (because it would account for the awards on this basis if they
were linked to the price of its own equity instruments).
Question 2
The proposed amendments to IFRS 2 and IFRIC 11 would be required to be applied
retrospectively, subject to the transitional provisions of IFRS 2.
Do you agree with the proposal? If not, what do you propose and why?
We agree with the proposed retrospective application of the amendments subject to the
transitional provisions of IFRS2. However, we suggest that it would be helpful if the Board
was to re-iterate in IFRIC11 that the transitional provisions that apply to equity-settled
transactions differ from those that apply to cash-settled transactions and clarify which
transitional provisions apply in each situation.
Please feel free to contact me if you would like to discuss our comments.
Yours sincerely
Mark Smith
Secretary
Hundred Group - Financial Reporting Committee
T: +44(0) 20 8877 5191
E: msmith@tomkins.co.uk
Page 3 of 3