SBC ASPE 3870 IFRS 2

Question 1

How should employee stock options be accounted for on the financial statements (at what
amount and what accounts are debited/credited)?

Answer 1

ASPE 3870 and IFRS 2

• Measured at fair value at date option is
  granted (not subsequently re-measured)
• Equity is credited and expense debited for value
  of option when granted if no vesting period
• Expense is recognized and equity credited over
  vesting period to match with services received if
  there is a vesting period

Question 2

How is compensation expense measured when the shares or options have a vesting period?

Answer 2

ASPE 3870

Choice to accrue cost either:
1. Based on an estimate of the number of instruments expected to vest and revise
estimate to actual if necessary

2. As if all of the instruments granted will vest and then subsequently recognizing forfeitures as they occur

IFRS 2
* No choice, must accrue cost based on an estimate of the number of instruments expected to vest and revise estimate to actual if necessary
(same as option 1 under ASPE)

Question 3

How is the fair value of shares or stock
options granted to employees measured?

Answer 3

ASPE 3870 and IFRS 2

• Non-restricted shares

‒ Measured at market price (or estimated market price, if the stock is not publicly traded) of a share of the same stock as if it were vested and issued on the grant date.

• Restricted shares (i.e., that carry restrictions even after the employee has a vested right to it)

‒ Measured as the amount that a non-employee would pay for similarly restricted stock

• Stock options

‒ Fair value is estimated using an option pricing model (e.g., Black-Scholes) that takes into account as of the grant date the exercise price, the expected life of the option, the current price of the underlying stock, its expected volatility, expected dividends on the stock and the risk-free interest rate for the expected term of the option.

• Not subsequently adjusted for changes in above variables