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Amendments to Indian Accounting Standards (Ind AS) under the Companies Act
In exercise of the powers conferred by Section 133, read with Section 469 of the Companies Act, 2013 (18 of 2013) and Sub-section (1) of Section 210A of the Companies Act, 1956 (1 of 1956), the Central Government, in consultation with the National Advisory Committee on Accounting Standards, has notified amendments to the Companies (Indian Accounting Standards) Rules, 2015.
Amendments to Indian Accounting Standard (Ind AS) 102 – Share-based Payment
In the principal rules, under the heading B. Indian Accounting Standards (Ind AS), the following changes have been made to Ind AS 102 – Share-based Payment:
1. Substitution of Paragraph 19
The previous paragraph 19 has been replaced with the following:
19 – A grant of equity instruments may be conditional upon satisfying specific vesting conditions. For instance, an employee may be granted shares or share options subject to remaining employed for a defined period. Performance conditions, such as achieving a certain profit growth or a target share price increase, may also be required. Vesting conditions (excluding market conditions) shall not be factored into the fair value estimate of shares or share options at the measurement date. Instead, these conditions will be considered by adjusting the number of equity instruments included in the transaction amount. Consequently, no amount is recognized if the equity instruments do not vest due to the failure to meet a vesting condition, except in cases where market conditions apply.
2. Substitution of Paragraph 30
30 – For cash-settled share-based payment transactions, an entity shall measure the goods or services acquired and the liability incurred at the fair value of the liability, in accordance with paragraphs 31–33D. The fair value of the liability shall be remeasured at each reporting period’s end and at the settlement date, with changes recognized in profit or loss.
3. Substitution of Paragraph 31
31 – Entities may grant share appreciation rights (SARs) as part of employee remuneration. These entitle employees to future cash payments based on the increase in the company’s share price over a specified period. Alternatively, employees may receive a right to redeem shares for cash, either mandatorily (e.g., upon termination) or at their discretion. Such arrangements are considered cash-settled share-based payment transactions and shall follow the valuation requirements outlined in paragraphs 32–33D.
4. Substitution of Paragraph 33
33 – The liability shall be measured initially and subsequently at the fair value of the share appreciation rights, applying an option pricing model that accounts for:
- The terms and conditions of the grant
- The extent to which employees have rendered service to date
Any modifications to cash-settled share-based payments will be addressed under paragraphs B44A–B44C in Appendix B.
5. Insertion of New Sections: Treatment of Vesting and Non-Vesting Conditions (Paragraphs 33A–33D)
33A – Cash-settled share-based payment transactions may be subject to vesting conditions. These conditions (excluding market conditions) shall be accounted for by adjusting the number of awards included in the transaction’s liability measurement.
33B – The entity shall recognize an amount for services received during the vesting period based on the best estimate of awards expected to vest. The estimate must be updated periodically and adjusted upon final vesting.
33C – Market conditions (e.g., target share price) and non-vesting conditions shall be considered when estimating and remeasuring the fair value of cash-settled share-based payments.
33D – The cumulative amount recognized for a cash-settled share-based payment shall equal the actual cash paid upon settlement.
6. Substitution of Paragraph 52
52 – If the standard’s disclosure requirements (as per paragraphs 44, 46, and 50) are insufficient, entities must provide additional disclosures. For instance, if an entity classifies a share-based payment as equity-settled, it must disclose its estimate of tax obligations and any expected future cash flows.
Amendments to Share-Based Payment Transactions with Net Settlement for Withholding Tax Obligations
33E – If tax laws require an entity to withhold a portion of share-based payments to cover an employee’s tax obligation, the entity may deduct a number of shares equal to the tax amount before issuing the remaining shares to the employee.
33F – These transactions shall be classified as equity-settled share-based payments, except where excess shares are withheld beyond tax obligations, in which case they shall be cash-settled.
33G – The withheld portion used to cover taxes shall be recorded as a deduction from equity, except when exceeding the fair value of withheld equity instruments.
Transitional Provisions (Paragraphs 53–59A & 59B)
59A – Entities must apply the amendments in paragraphs 30–31, 33–33H, and B44–B44C prospectively. Prior periods shall not be restated.
59B – Entities may elect to apply paragraph 63D retrospectively if it is feasible without hindsight. If chosen, this must be done consistently for all amendments related to Classification and Measurement of Share-based Payment Transactions under Ind AS 102.
Amendments to Ind AS 7 – Statement of Cash Flows
Under Annexure B, the following changes have been made to Ind AS 7 – Statement of Cash Flows:
1. Insertion of New Section: Changes in Liabilities Arising from Financing Activities (Paragraphs 44A–44E)
44A – Entities must disclose changes in liabilities arising from financing activities, including cash and non-cash changes.
44B – The disclosure must include:
(a) Changes from financing cash flows
(b) Changes due to acquisitions or loss of control over subsidiaries
(c) Effects of foreign exchange rate changes
(d) Changes in fair values
(e) Other relevant changes
44C – Financing liabilities are defined as liabilities whose cash flows are (or will be) classified under financing activities in the statement of cash flows.
44D – A reconciliation of the opening and closing balances of financing liabilities must be provided.
44E – If changes in financing liabilities are disclosed alongside changes in other assets and liabilities, financing-related changes must be clearly distinguished.
These amendments aim to enhance transparency, comparability, and compliance with global accounting standards. Entities must align their financial reporting with these changes to ensure accurate recognition and measurement of share-based payments and financing activities.
