The following Share Incentives guidance note provides comprehensive and up to date legal information covering:
The accounting cost for an equity-settled share based payment (SBP) is normally determined and measured at the date of grant, and is based on a theoretical ‘fair’ value of the award at that date. For further details on the difference between fair and market value, see Practice Note: The difference between the face and fair value of a share option.
Normally, when an entity uses goods or services, it incurs an accounting expense and has a liability until the liability is paid. In an equity settled SBP transaction, an entity also receives goods or services but, instead of incurring a liability which is then paid, it receives those goods or services in exchange for equity instruments in the entity. This results in the entity not needing to recognise the goods and services it receives as a liability in its financial statements but still needing to recognise the goods and services as an accounting cost.
The fair value of the equity instrument is the product of a combination of the underlying value of the equity instrument and the probability of an award vesting.
The measurement date of the fair value is the date at which there is a common understanding of the terms of the SBP
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