How are share-based payments recognised and measured under IFRS 2?

IFRS 2 requires an entity to recognise the fair value of share-based payment transactions as an expense (or as part of the cost of an asset) over the vesting period. For equity-settled awards the credit goes to equity; for cash-settled awards the credit is a liability that is remeasured at every reporting date (IFRS 2.10). IFRS 2 covers all transactions in which an entity receives goods or services and pays with shares, share options, or cash amounts based on share price. It applies to transactions with employees, directors and third-party suppliers. Excluded from scope: business combinations under IFRS 3, certain commodity contracts settled net in cash, and employee share purchase plans that meet the narrow criteria in IFRS 2.B1. - Equity-settled: entity issues its own equity instruments (shares, options, RSUs). Grant-date fair value is fixed once and never revised. Expense is recognised over the vesting period with a credit to a share-based payment reserve in equity. - Cash-settled: entity settles in cash (or other assets) linked to its share price — share appreciation rights (SARs), phantom shares. The liability is remeasured to fair value at every reporting date and at settlement, creating recurring P&L volatility. - Choice arrangements: if the entity holds the settlement choice, treat as equity-settled unless there is a present obligation to pay cash. If the counterparty holds the choice, split the award into debt and equity components.

What is the difference between equity-settled and cash-settled share-based payments under IFRS 2?

Expense accrues over the vesting period — the period the employee renders the qualifying service: - No vesting condition: recognise immediately on grant date. - Service condition: spread over the expected service period; revise if the service period changes. - Non-market performance condition (e.g., EPS target): estimate the number of awards expected to vest at each reporting date; revise until vesting date. - Market condition (e.g., share price hurdle): reflect in the grant-date fair value via an option-pricing model; do not adjust expense if the condition is not subsequently met. - [IFRS 2 Equity-Settled Share-Based Payments](/learn/en/ifrs-2-equity-settled) — Grant-date measurement, RSUs vs options, journal entries through grant, vest and exercise. - [IFRS 2 Vesting Conditions](/learn/en/ifrs-2-vesting-conditions) — Service, performance and market conditions; cumulative true-up mechanics with worked numbers. - [IFRS 2 Fair Value Measurement of Share Options](/learn/en/ifrs-2-fair-value-measurement) — Black-Scholes inputs, binomial lattice, Monte Carlo; sensitivity and auditor expectations. - [IFRS 2 Modification and Cancellation](/learn/en/ifrs-2-modification) — Repricing, vesting acceleration, cash settlement of equity awards; incremental fair value calculation. - [IFRS 2 Cash-Settled Share-Based Payments](/learn/en/ifrs-2-cash-settled) — SARs and phantom shares step by step; remeasurement entries at each year-end.

How are market vesting conditions treated differently from performance conditions under IFRS 2?

Note: final year charge is adjusted so cumulative expense equals actual awards vested × grant-date fair value (1,090 × €40 = €43,600). - Remeasuring equity-settled awards after grant date: IFRS 2.19 expressly prohibits this — grant-date fair value is locked regardless of share price movements. - Treating market conditions like performance conditions: market conditions (share price hurdles) must be priced into the grant-date valuation and are never reversed even if the hurdle is missed. - Ignoring the forfeiture true-up: non-market vesting conditions require a best estimate of expected awards to vest, revised every period until actual vesting. A fixed-rate assumption leads to cumulative error. - Mis-classifying a constructive cash obligation: if an entity has a pattern of settling equity awards in cash, the award is cash-settled and must be remeasured. - IFRS 2.10 — core recognition and measurement rule - IFRS 2.19–20 — equity-settled: grant-date measurement, no subsequent remeasurement - IFRS 2.21 — non-market vesting conditions and the cumulative true-up - IFRS 2.26–29 — market conditions and modification accounting - IFRS 2.30–33 — cash-settled: remeasurement at each reporting date - IFRS 2.50–52 — disclosure: number and weighted-average fair value of instruments granted, exercised, forfeited

IFRS 2 Share-Based Payment — Complete Guide

IFRS 2 Share-Based Payment — Core Rule

IFRS 2 requires an entity to recognise the fair value of share-based payment transactions as an expense (or as part of the cost of an asset) over the vesting period. For equity-settled awards the credit goes to equity; for cash-settled awards the credit is a liability that is remeasured at every reporting date (IFRS 2.10).

Scope

IFRS 2 covers all transactions in which an entity receives goods or services and pays with shares, share options, or cash amounts based on share price. It applies to transactions with employees, directors and third-party suppliers. Excluded from scope: business combinations under IFRS 3, certain commodity contracts settled net in cash, and employee share purchase plans that meet the narrow criteria in IFRS 2.B1.

Classification: Equity-Settled vs Cash-Settled

Classification determines the entire accounting:

Equity-settled: entity issues its own equity instruments (shares, options, RSUs). Grant-date fair value is fixed once and never revised. Expense is recognised over the vesting period with a credit to a share-based payment reserve in equity.
Cash-settled: entity settles in cash (or other assets) linked to its share price — share appreciation rights (SARs), phantom shares. The liability is remeasured to fair value at every reporting date and at settlement, creating recurring P&L volatility.
Choice arrangements: if the entity holds the settlement choice, treat as equity-settled unless there is a present obligation to pay cash. If the counterparty holds the choice, split the award into debt and equity components.

Vesting and Expense Recognition

Expense accrues over the vesting period — the period the employee renders the qualifying service:

No vesting condition: recognise immediately on grant date.
Service condition: spread over the expected service period; revise if the service period changes.
Non-market performance condition (e.g., EPS target): estimate the number of awards expected to vest at each reporting date; revise until vesting date.
Market condition (e.g., share price hurdle): reflect in the grant-date fair value via an option-pricing model; do not adjust expense if the condition is not subsequently met.

Explore Each Topic in Depth

IFRS 2 Equity-Settled Share-Based Payments — Grant-date measurement, RSUs vs options, journal entries through grant, vest and exercise.
IFRS 2 Vesting Conditions — Service, performance and market conditions; cumulative true-up mechanics with worked numbers.
IFRS 2 Fair Value Measurement of Share Options — Black-Scholes inputs, binomial lattice, Monte Carlo; sensitivity and auditor expectations.
IFRS 2 Modification and Cancellation — Repricing, vesting acceleration, cash settlement of equity awards; incremental fair value calculation.
IFRS 2 Cash-Settled Share-Based Payments — SARs and phantom shares step by step; remeasurement entries at each year-end.

Illustrative Example — RSU Award

A company grants 1,200 RSUs on 1 January 20X1 at a grant-date fair value of €40 each, cliff-vesting after three years subject to continued employment. At grant date the company estimates 10% of employees will leave before vesting (120 RSUs forfeited).

Expected awards to vest: 1,200 × 90% = 1,080 RSUsTotal expected expense: 1,080 × €40 = €43,200Annual expense: €43,200 ÷ 3 = €14,400

Year	Leavers to date	Expected to vest	Cumulative expense	Year charge
20X1	40 actual	1,080 estimated	€14,400	€14,400
20X2	90 actual	1,020 revised	€27,200	€12,800
20X3	110 actual	1,090 vested	€43,600	€16,400

Note: final year charge is adjusted so cumulative expense equals actual awards vested × grant-date fair value (1,090 × €40 = €43,600).

IFRS 2 Share-Based Payment — Common Pitfalls

Remeasuring equity-settled awards after grant date: IFRS 2.19 expressly prohibits this — grant-date fair value is locked regardless of share price movements.
Treating market conditions like performance conditions: market conditions (share price hurdles) must be priced into the grant-date valuation and are never reversed even if the hurdle is missed.
Ignoring the forfeiture true-up: non-market vesting conditions require a best estimate of expected awards to vest, revised every period until actual vesting. A fixed-rate assumption leads to cumulative error.
Mis-classifying a constructive cash obligation: if an entity has a pattern of settling equity awards in cash, the award is cash-settled and must be remeasured.

Key Paragraphs

IFRS 2.10 — core recognition and measurement rule
IFRS 2.19–20 — equity-settled: grant-date measurement, no subsequent remeasurement
IFRS 2.21 — non-market vesting conditions and the cumulative true-up
IFRS 2.26–29 — market conditions and modification accounting
IFRS 2.30–33 — cash-settled: remeasurement at each reporting date
IFRS 2.50–52 — disclosure: number and weighted-average fair value of instruments granted, exercised, forfeited