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CFA Level I · CFA Level I Exam · Topics in Long-Term Liabilities and Equity

A company's share price falls sharply after it grants employee stock options under IFRS. The options are now far out of the money. The company's accounting for the equity-settled award is most likely to:

The company continues to recognize expense based on the grant-date fair value. Equity-settled awards are not remeasured for later share price movements, even if the options become worthless; only changes in expected vesting from service conditions alter the cumulative expense.

  1. AContinue recognizing expense based on the grant-date fair value.Correct
  2. BReverse previously recognized expense to reflect the lower fair value.
  3. CRemeasure the options at fair value each reporting date through profit or loss.

Explanation

For equity-settled awards, IFRS 2 fixes measurement at grant date and does not remeasure for later share price changes. Expense is adjusted only for changes in the expected number of awards vesting due to service or non-market conditions. Remeasurement applies to cash-settled awards.

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