HKFRS 2 amendment to clarify the meaning of vesting condition

In March 2008 the HKICPA also issued the amendments to HKFRS 2 "Share-based Payment: Vesting Conditions and Cancellations". The amendment changes the definition of vesting conditions which will be restricted to service conditions and performance conditions. It also introduces the term "non-vesting conditions". Non-vesting conditions are requirements that are not service or performance conditions, but which have to be met in order for the counterparty (e.g. the employee) to receive the share-based payment. These conditions must be taken into account in measuring the grant date fair value of the equity instruments granted.

The amendment also requires that when either the entity or a counterparty can choose whether a non-vesting condition is met, failure to meet that non-vesting condition is to be treated as a cancellation. HKFRS 2 requires that a cancellation is accounted for as an acceleration of vesting ¡V the amount that would have been spread over the remainder of the vesting period is expensed immediately. The amendment will therefore have a significant impact on some entities' results.

A common example of a non-vesting condition is an employee share option scheme under which the employee has to make regular contributions into a savings account during the vesting period. These funds are then used to exercise the options. Consequently, any such schemes (sometimes known as Save As You Earn or SAYE schemes) should be reviewed carefully for the impact of this amendment. Accounting systems may need to be amended to track the savings record of all employees in the scheme to ensure cancellations are identified and accounted for in accordance with the new requirement.

The changes are effective for accounting periods beginning on or after 1 January 2009 and will be applied retrospectively.
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