A. Core Principles & Scope
Q1: What is the objective of Ind AS 102, and why is share-based payment accounting necessary?
What the interviewer tests: The interviewer is looking for your understanding of share-based payment transactions and their impact on financial statements.
Key elements:
- Objective of Ind AS 102
- Share-based payment transactions
- Impact on financial statements
The objective of Ind AS 102 is to prescribe the financial reporting for share-based payment transactions, ensuring that the cost of share-based payments is recognized in the financial statements. This accounting is necessary to provide a true and fair view of a company's financial position and performance, reflecting the economic reality of compensation given to employees.
Q2: How is a "share-based payment transaction" defined under Ind AS 102?
What the interviewer tests: The interviewer is evaluating your understanding of share-based payments and relevant accounting standards.
Key elements:
- Definition of share-based payment
- Ind AS 102 compliance
- Types of share-based transactions
Under Ind AS 102, a 'share-based payment transaction' is defined as a transaction in which an entity receives goods or services as consideration for equity instruments of the entity or incurs liabilities to settle amounts in cash based on the price of the entity's shares. This includes both equity-settled and cash-settled transactions.
Q3: What are the different types of share-based payment arrangements covered under the standard?
What the interviewer tests: The interviewer is assessing your knowledge of share-based payment accounting and relevant standards.
Key elements:
- Equity-settled share-based payments
- Cash-settled share-based payments
- Transaction types and valuation
The standard covers equity-settled share-based payments, where the entity receives goods or services in exchange for equity instruments, and cash-settled share-based payments, where the entity pays cash based on the value of its shares. Each type requires different accounting treatment and valuation methods.
Q4: What distinguishes equity-settled and cash-settled share-based payments?
What the interviewer tests: The interviewer is testing your comprehension of share-based payment transactions and their accounting treatment.
Key elements:
- Settlement method
- Recognition of expense
- Impact on financial statements
Equity-settled share-based payments are settled in the company's own shares, while cash-settled payments are settled in cash. The recognition of expense differs; equity-settled payments are expensed based on the fair value of the equity instruments at grant date, while cash-settled payments are remeasured at fair value until settled, impacting the financial statements accordingly.
Q5: What types of transactions are outside the scope of Ind AS 102?
What the interviewer tests: The interviewer is evaluating your knowledge of accounting standards and their applications.
Key elements:
- Scope exclusions
- Types of transactions
- Understanding of Ind AS 102
Transactions outside the scope of Ind AS 102 include those related to acquisition of goods or services that are not classified as share-based payments, such as employee benefits governed by other standards, and transactions that do not involve the issuance of equity instruments.
B. Equity-settled vs Cash-settled Transactions
Q6: How are equity-settled share-based payments measured and recognized in the financial statements?
What the interviewer tests: The interviewer is assessing your understanding of accounting standards related to share-based payments.
Key elements:
- Measurement at fair value
- Recognition in profit or loss
- Impact on equity
Equity-settled share-based payments are measured at fair value on the grant date. This fair value is recognized as an expense in the profit or loss over the vesting period, with a corresponding increase in equity. This approach reflects the cost of the services received from employees.
Q7: What is the accounting treatment for cash-settled share-based payments under Ind AS 102?
What the interviewer tests: The interviewer is assessing your understanding of share-based payment accounting standards and your ability to apply them.
Key elements:
- Recognition of expense
- Measurement of fair value
- Liability classification
Under Ind AS 102, cash-settled share-based payments are recognized as a liability at fair value. The expense is recognized over the vesting period, with re-measurements at each reporting date until settlement.
Q8: How is a share-based payment accounted for when it includes both equity and cash components?
What the interviewer tests: The interviewer is evaluating your knowledge of accounting standards related to share-based payments and their financial implications.
Key elements:
- Equity component recognition
- Cash component treatment
- Compliance with accounting standards
When a share-based payment includes both equity and cash components, the equity component is recognized based on the fair value of the equity instruments at grant date, while the cash component is accounted for as a liability at the fair value at each reporting date until settled, in accordance with IFRS or GAAP standards.
Q9: What are the key considerations in determining the grant date fair value of equity instruments?
What the interviewer tests: The interviewer is checking your grasp of equity compensation and the methodologies for valuing equity instruments.
Key elements:
- Market conditions
- Valuation models
- Employee behavior
Key considerations include the market conditions at the grant date, the use of appropriate valuation models such as Black-Scholes or binomial models, and expectations regarding employee behavior, including exercise patterns and forfeiture rates, which all influence the fair value assessment.
Q10: How are modifications to the terms and conditions of share-based payments accounted for?
What the interviewer tests: The interviewer is testing your knowledge of accounting standards related to share-based payments and your understanding of how modifications impact financial statements.
Key elements:
- Understanding of IFRS 2
- Impact on fair value
- Recognition of expense over vesting period
Modifications to the terms and conditions of share-based payments are accounted for by reassessing the fair value of the equity instruments at the modification date. According to IFRS 2, if the modification increases the fair value of the equity instruments granted, the incremental fair value is recognized as an expense over the remaining vesting period.
C. Measurement & Estimation Techniques
Q11: What valuation models are commonly used for determining the fair value of share options?
What the interviewer tests: The interviewer is evaluating your knowledge of financial instruments and valuation techniques.
Key elements:
- Black-Scholes model
- Binomial model
- Market conditions
Commonly used valuation models for determining the fair value of share options include the Black-Scholes model, which calculates the option price based on factors like stock price, exercise price, volatility, and time to expiration, and the Binomial model, which provides a flexible framework for valuing options by considering different paths the stock price may take over time.
Q13: How are forfeitures estimated and adjusted in expense recognition?
What the interviewer tests: The interviewer is looking for your knowledge on expense recognition principles and how they relate to estimates.
Key elements:
- Estimation of forfeitures
- Adjustment in financial statements
- Impact on expense recognition
Forfeitures are estimated based on historical data and expected future trends. When adjusting for forfeitures, companies reduce the total expense recognized, leading to a more accurate reflection of actual costs in the financial statements.
Q14: How is the vesting period determined, and how does it affect expense recognition?
What the interviewer tests: The interviewer wants to know your grasp of vesting schedules and their accounting implications.
Key elements:
- Definition of vesting period
- Factors influencing determination
- Impact on financial statements
The vesting period is determined based on the terms set by the company, often influenced by employee retention strategies and performance goals. It affects expense recognition by spreading the cost of equity-based compensation over the vesting period, aligning expenses with the period in which services are rendered.
Q15: What is the accounting treatment when a share-based payment is cancelled or settled early?
What the interviewer tests: The interviewer is assessing your understanding of share-based payment accounting and the implications of cancellation or early settlement.
Key elements:
- Cancellation accounting treatment
- Impact on financial statements
- Recognition of expense
When a share-based payment is cancelled or settled early, the entity must reverse any previously recognized expense related to unvested awards and recognize any remaining fair value of vested awards as an expense in the period of cancellation.
D. Disclosure Requirements
Q16: What disclosures are required for equity-settled share-based payments?
What the interviewer tests: The interviewer is evaluating your knowledge of accounting standards related to share-based compensation and financial transparency.
Key elements:
- Nature and terms of share-based payments
- Valuation methods
- Impact on financial position
Disclosures for equity-settled share-based payments include the nature and terms of the share-based payment arrangements, the number of options granted, the valuation methods used to determine fair value, and the impact on equity and earnings per share.
Q17: What disclosures are required for cash-settled share-based payments?
What the interviewer tests: The interviewer is testing your understanding of accounting standards related to share-based payments.
Key elements:
- Disclosure requirements
- Cash-settled share-based payments
- Financial reporting standards
For cash-settled share-based payments, entities must disclose the fair value of the liabilities incurred, the terms and conditions of the arrangement, and the number of instruments granted. Additionally, the entity should provide details on how the fair value is measured and any changes in the liability during the reporting period, as per the guidelines set forth in Ind AS 102.
Q19: Why is disclosure of valuation assumptions critical under Ind AS 102?
What the interviewer tests: The interviewer is assessing your understanding of the importance of transparency in financial reporting.
Key elements:
- Transparency
- Investor confidence
- Regulatory compliance
Disclosure of valuation assumptions under Ind AS 102 is critical because it enhances transparency, allowing stakeholders to understand the basis of valuations. This transparency builds investor confidence and ensures compliance with regulatory standards, ultimately leading to more informed decision-making.
Q20: How should the total expense recognized during the period be disclosed?
What the interviewer tests: The interviewer is testing your knowledge of financial reporting standards and transparency.
Key elements:
- Compliance with accounting standards
- Detailing components of expenses
- Clarity and transparency
Total expenses recognized during the period should be disclosed in accordance with relevant accounting standards, such as GAAP or IFRS. It's essential to detail the components of expenses, ensuring clarity and transparency for stakeholders, so they can understand the financial performance accurately.
E. Practical Scenarios & Judgements
Q21: How would you account for share-based payments granted to non-employees for services received?
What the interviewer tests: The interviewer is testing your understanding of accounting standards related to share-based payments and your ability to apply them in practice.
Key elements:
- Recognition of expense
- Measurement of fair value
- Disclosure requirements
Share-based payments to non-employees are accounted for by recognizing an expense based on the fair value of the equity instruments granted at the grant date. This fair value is typically measured using an option pricing model, and the expense is recognized over the period in which the services are provided. Additionally, proper disclosures must be made in the financial statements as per the relevant accounting standards.
Q22: How is a share-based payment with a choice of settlement (either cash or equity) accounted for?
What the interviewer tests: The interviewer is assessing your understanding of share-based payment accounting standards and their implications.
Key elements:
- Understanding of IFRS 2
- Recognition of expense
- Choice of settlement implications
Under IFRS 2, a share-based payment with a choice of settlement is recognized as an expense based on the fair value of the equity instruments granted at the grant date. If the choice is between cash or equity, the liability is measured at fair value until settled, impacting the financial statements based on the eventual settlement choice.
Q24: How should a company treat share-based payments where the employee leaves before vesting?
What the interviewer tests: The interviewer is testing your knowledge of share-based payment accounting and the implications of employee turnover on compensation plans.
Key elements:
- Vesting conditions
- Accounting treatment for forfeitures
- Impact on financial statements
If an employee leaves before the share-based payment vests, the company should recognize a forfeiture. The expense previously recognized for the unvested shares should be reversed, and any remaining unrecognized compensation cost should be adjusted accordingly in the financial statements.
Q25: What internal controls should a company implement to ensure compliance with Ind AS 102?
What the interviewer tests: The interviewer wants to evaluate your knowledge of internal controls related to share-based payments under Ind AS 102.
Key elements:
- Documentation of share-based payment arrangements
- Regular audits of compliance with Ind AS 102
- Training for staff on accounting for share-based payments
To ensure compliance with Ind AS 102, a company should implement robust documentation practices for share-based payment arrangements, conduct regular audits to verify adherence to the standards, and provide training for relevant staff to enhance their understanding of the accounting and reporting requirements associated with share-based payments.
