How do I account for equity-settled share-based payments — RSUs and share options — under IFRS 2?

Core Rule For equity-settled share-based payments, an entity measures the transaction at the fair value of the equity instruments granted on the grant date and recognises that amount as an expense over the vesting period, with a corresponding credit to equity (IFRS 2.10 and IFRS 2.19). The grant-date fair value is never revised after measurement, regardless of subsequent changes in the share price or the intrinsic value of the award. What Counts as Equity-Settled? An award is equity-settled when the entity's obligation is to deliver its own equity instruments — shares, share options, restricted stock units (RSUs), performance share plans (PSPs), or warrants. The key test is whether the entity issues equity rather than paying cash. An entity that has a consistent past practice of settling awards in cash has a constructive obligation and must treat those awards as cash-settled under IFRS 2.3B. Measurement at Grant Date - Shares and RSUs: measure at the market price of the shares on grant date, less any dividends the employee will not receive during the vesting period. - Share options: grant-date fair value must be estimated using an option-pricing model because options cannot be observed in an active market. The Black-Scholes model is most commonly used for European-style options; the binomial (lattice) model handles early exercise and American-style features. See [IFRS 2 Fair

Do I reverse the equity reserve when share options lapse without being exercised under IFRS 2?

Value Measurement](/learn/en/ifrs-2-fair-value-measurement) for inputs and methodology. - Market conditions (e.g., a total shareholder return hurdle): incorporate into the option model; do not adjust expense if the hurdle is missed (IFRS 2.21). Expense Recognition Over the Vesting Period The expense accrues on a straight-line basis over the vesting period, with cumulative expense at each period-end determined by: Cumulative expense = Grant-date FV × Expected awards to vest × (Period elapsed ÷ Total vesting period) The period charge equals the cumulative expense to date minus the cumulative expense recognised in prior periods. This "catch-up" formula automatically corrects for revised estimates of expected vesting. If an employee leaves before vesting Reduce the estimated number of awards expected to vest; the cumulative expense is revised downward. Any over-accrued expense is reversed through profit or loss — there is no restatement of prior periods. Journal Entries: RSU Example Scenario: 800 RSUs granted on 1 January 20X1, grant-date fair value €60 per RSU, three-year cliff vest. No expected forfeitures. Total expense: 800 × €60 = €48,000 over 3 years = €16,000 per year. Each year-end (20X1, 20X2, 20X3): | Account | Dr (€) | Cr (€) | |---|---|---| | Share-based payment expense (P&L) | 16,000 | | | Share-based payment reserve (Equity) | | 16,000 | On vesting (1 January 20X4)

How do I calculate the grant-date fair value of share options using Black-Scholes under IFRS 2?

— shares issued at nominal value €1: | Account | Dr (€) | Cr (€) | |---|---|---| | Share-based payment reserve | 48,000 | | | Share capital (800 × €1) | | 800 | | Share premium | | 47,200 | Journal Entries: Share Option Example Scenario: 2,000 options granted on 1 January 20X1, grant-date fair value €8 per option (Black-Scholes), vesting after 2 years. Exercise price €20, share price at grant €22. 100 options expected to lapse. Expected options to vest: 1,900. Total expense: 1,900 × €8 = €15,200 over 2 years = €7,600/year. Year-end 20X1: | Account | Dr (€) | Cr (€) | |---|---|---| | Share-based payment expense | 7,600 | | | Share-based payment reserve (Equity) | | 7,600 | Year-end 20X2 (actual lapses: 80, so 1,920 vest — minor true-up): Revised cumulative: 1,920 × €8 = €15,360. Year 2 charge: €15,360 − €7,600 = €7,760. | Account | Dr (€) | Cr (€) | |---|---|---| | Share-based payment expense | 7,760 | | | Share-based payment reserve (Equity) | | 7,760 | On exercise of 1,500 options at €20 (share price now €30): | Account | Dr (€) | Cr (€) | |---|---|---| | Cash (1,500 × €20) | 30,000 | | | Share-based payment reserve (1,500/1,920 × €15,360) | 12,000 | | | Share capital (1,500 × €1) | | 1,500 | | Share premium | | 40,500 | On lapse of unexercised options (420 options never exercised): the reserve is not reversed — the credit remains in equity, typically reclassified to retaine

What happens to the IFRS 2 expense if employees leave and forfeit their awards before vesting?

d earnings. Common Pitfalls - Remeasuring after grant date (IFRS 2.19): this is the most frequent error. Once the grant-date fair value is set, it does not change — not for share price movements, not for interest rate changes, not for updated volatility assumptions. - Using intrinsic value instead of fair value: intrinsic value (share price minus exercise price) is only permitted when fair value cannot be reliably estimated — an extremely narrow exception. All listed entities must use a proper option-pricing model. - Reversing the equity reserve on lapse: when options lapse unexercised, no reversal is made to profit or loss. The equity credit stays in equity (IFRS 2.23). Reversing it inflates reported profit. - Applying vesting adjustments to market-condition awards: if the performance hurdle is share-price based, the expense is fixed at grant-date fair value and is not reduced if the hurdle is missed. Only non-market conditions allow downward revision. Key Paragraphs - IFRS 2.10 — recognition at grant-date fair value - IFRS 2.19 — equity-settled: no remeasurement after grant date - IFRS 2.20 — indirect measure via fair value of goods/services received when counterparty is not an employee - IFRS 2.21 — cumulative expense adjusted for non-market vesting conditions - IFRS 2.23 — lapsed options: equity credit not reversed - IFRS 2.26–28 — modification: incremental fair value onl

IFRS 2 Equity-Settled Share-Based Payments — RSUs, Options and Journal Entries

IFRS 2 Equity-Settled Share-Based Payments — Core Rule

For equity-settled share-based payments, an entity measures the transaction at the fair value of the equity instruments granted on the grant date and recognises that amount as an expense over the vesting period, with a corresponding credit to equity (IFRS 2.10 and IFRS 2.19). The grant-date fair value is never revised after measurement, regardless of subsequent changes in the share price or the intrinsic value of the award.