(IFRS) for Small and Medium-sized Entities (SMEs)

IFRS FOR SMES – JULY 2009estimate to equal the number of equity instruments that ultimately vested.All market vesting conditions and non-vesting conditions shall be taken intoaccount when estimating the fair value of the shares or share options at themeasurement date, with no subsequent adjustment irrespective of the outcome.Shares26.10 An entity shall measure the fair value of shares (and the related goods or servicesreceived) using the following three-tier measurement hierarchy:(a)(b)If an observable market price is available for the equity instrumentsgranted, use that price.If an observable market price is not available, measure the fair value ofequity instruments granted using entity-specific observable market datasuch as(i)(ii)a recent transaction in the entity’s shares, ora recent independent fair valuation of the entity or its principalassets.(c)If an observable market price is not available and obtaining a reliablemeasurement of fair value under (b) is impracticable, indirectly measure thefair value of the shares or share appreciation rights using a valuation methodthat uses market data to the greatest extent practicable to estimate what theprice of those equity instruments would be on the grant date in an arm’slength transaction between knowledgeable, willing parties. The entity’sdirectors should use their judgement to apply the most appropriatevaluation method to determine fair value. Any valuation method usedshould be consistent with generally accepted valuation methodologies forvaluing equity instruments.Share options and equity-settled share appreciation rights26.11 An entity shall measure the fair value of share options and equity-settled shareappreciation rights (and the related goods or services received) using thefollowing three-tier measurement hierarchy:(a)(b)(c)If an observable market price is available for the equity instrumentsgranted, use that price.If an observable market price is not available, measure the fair value of shareoptions and share appreciation rights granted using entity-specificobservable market data such as for a recent transaction in the share options.If an observable market price is not available and obtaining a reliablemeasurement of fair value under (b) is impracticable, indirectly measurethe fair value of share options or share appreciation rights using an optionpricing model. The inputs for the model (such as the weighted averageshare price, exercise price, expected volatility, option life, expecteddividends, and the risk-free interest rate) should use market data to thegreatest extent possible. Paragraph 26.10 provides guidance ondetermining the fair value of the shares used in determining the weighted154 © IASCF