IAG annual report—Concise

NOTES TO THE FINANCIAL STATEMENTS
For the year ended 30 June 2005
NOTE 11. EVENTS SUBSEQUENT TO REPORTING DATE (CONTINUED)
(c) International financial reporting standards (continued)
2b) Share based
payments (continued)
The IAG Group’s current practice is to acquire
IAG shares on-market and hold them in trust to
satisfy a future obligation for share based
remuneration. The shares are purchased on or
near grant date at the then market price. The
cost of acquiring the shares is initially recorded
as a prepayment and is then expensed in full,
generally over the period during which the
employees provide related services.
Under A-IFRS the fair value at grant date of
share based remuneration is required to be
recognised as an expense over the period from
grant date until the equity instruments vest
fully to the employee. For equity settled share
based payments, an equity reserve is created
as the expense is recognised. At each
reporting date the total accumulated expense
will be adjusted through the statement of
financial performance based on the latest
estimate of the number of equity instruments
that will vest, considering only employee
turnover, and taking into account the expired
portion of the vesting period.
The vesting conditions for the two plans are
different with only the PARs Plan incorporating
a market based vesting condition. If equity
instruments in either of the plans do not vest
because the participant ceases to be employed
by the IAG Group then the expense charged in
relation to that participant will be reversed. If
equity instruments in the PARs Plan do not
vest only because the market condition is not
met, then the expense will not be reversed.
The A-IFRS requirement to expense the fair
value of the equity instruments granted may be
different to the fair value (on-market purchase
price) of acquiring the relevant number of
shares to support the arrangements. For the
PARs Plan, the fair value of the rights granted
is lower than the market value of the shares
purchased on or near grant date because of
the variables and uncertainty that influence
whether the participant will ever receive the
share and what the value of the share will be
at that time. For the NED Plan, the on-market
share price at grant date is used as the fair
value of the equity instrument granted because
the shares vest on a pro-rata daily basis with
limited forfeiture conditions and the participant
is entitled to dividends and other shareholder
rights during the vesting period.
The requirement to determine the fair value of
the share based remuneration and recognise
this expense over the period from grant date to
vesting date will result in an initial reduction in
the expense recognised for the IAG Group, to
that currently recorded in relation to share
based payments.
Equity remuneration
trusts to be
consolidated
3) Non-goodwill
intangibles
All current non-goodwill
intangible assets
qualify for recognition
Introduction of new
software development
asset
A transitional adjustment for the IAG Group
will be made to retained profits as at 1 July
2004 of $2 million representing the
accumulated reduction in the expense up to
that date. An additional adjustment for the
IAG Group will be made to retained profits as
at 1 July 2005 of $5 million representing the
accumulated reduction in the expense up to
that date. The expense will be matched by a
credit to an equity reserve. It is noted that
certain matters in relation to share based
payments are still subject to changing
interpretation, which may impact on the
determination of these adjustments.
Under A-IFRS the equity remuneration trusts
used to manage the share based
arrangements will be consolidated by the IAG
Group. Two trusts will be consolidated directly
by the parent entity while one trust will be
consolidated directly by a subsidiary. The
parent and the IAG Group will recognise the IAG
shares, the major asset of the trusts, as
negative equity (referred to as treasury shares).
The treasury shares will be measured at cost
(total amount paid to acquire the shares), and
will be shown as a deduction from equity. The
shares held by the trusts as at 30 June 2004
that are to be consolidated, were acquired on
different dates at a total cost of $20 million for
the parent and $21 million for the IAG Group.
The shares held by the trusts as at 30 June
2005 that are to be consolidated, were
acquired on different dates at a total cost of
$33 million for the parent and $34 million for
the IAG Group. When the relevant rights are
exercised, the Group will effectively reissue the
shares, which will be recognised as equity
measured at the net expense incurred in
providing the shares.
Existing non-goodwill intangible assets on the
IAG Group’s statement of financial position
at 1 July 2004 and 30 June 2005 meet the
recognition and measurement requirements
of A-IFRS and so the accounting treatment,
including amortisation, will remain unchanged.
They will be subject to impairment testing.
There are no impairment charges for these
assets at 1 July 2004, 31 December 2004,
or 30 June 2005.
In certain circumstances under A-IFRS,
development phase expenditure will be
capitalised and so recognised as an internally
generated intangible asset. Software
development is the only development
expenditure for the IAG Group. The IAG Group
is not currently carrying any capitalised
software development costs in the statement
of financial position but will recognise such
an asset under the more prescriptive A-IFRS
requirements. Only software development
projects with total budgeted expenditure of
more than $2 million will be capitalised. All
other software related costs are treated as
maintenance expenditure, being an overall part
of maintaining an efficient operating
environment, and are expensed as incurred.
72 IAG Annual Report 2005