Theoretical Foundations Of Share Based Payment Research

Advanced Financial Reporting and Theory
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Advanced Financial Reporting and Theory
Introduction
The main objective of IFRS is to offer guidance on financial reporting more so when a share based payment transactions. More specifically, the IFRS standard requires that a reporting entity reflects in its P&L and other necessary financial records the impact of share-based payment including expenses related to share options given to employees. Transfer of equity instruments to people who have provided services including employees or suppliers should be treated as share-based payment. The general relationship between the manager and other stakeholders should be put into consideration when determining if such a manager is a principal or an agent. This is essential when making decisions where an entity is engaged in share-payment transactions. The ensuing discussion explicates how share-based transactions should be treated in financial reporting and how to maintain flexible accounting principles.
Theoretical Foundations of Share based payment
Theoretical propositions have directly connected monetary incentives with output. However, these theories have been untested over the years making one of the contested issues in regard to performance payment and incentives on the side of workers. It is highly agreed that paying on the basis of individual performance helps in increasing the performance and productivity of employees. Different models have been developed to explain the relationship between pay and performance and share-based performance (Grabski, Leech & Schmidt, 2011). Much of the existing research on the effects of monetary incentives has focused on productivity but there exists extensive research to show that as productivity increases, an organization will be able to attract a more capable human resource force and difference in output which will in turn make it possible to differentiate itself among competitors and across rising shift rates.
Under PAT, all employees are required to execute their responsibilities in accordance with the prescribed rules of the organization besides having a clear plan of how they are supposed to execute their business. In the absence of such a plan, more energy will be consumed whilst very little achievement will be made. A plan with clear cut targets can help all employees or team members to carry out their responsibilities and work towards the completion of the project. Positive accounting theory helps the organization to engage its staff and supervisors in a meaningful appraisal process (Christensen, Hail & Leuz, 2013). In essence, positive accounting theory helps an organization to attract more workforces as compared with share-based payment.
Organizations with share-based pay/compensation have a high likelihood of experiencing greater income tax volatility and meaningful effect on earnings and income per share. Whilst it is possible to model the possible effects, the possible forecast accuracy is dependent on the exactitude of the outlined assumptions which will in this case differ from one organization to the other. For example, organizations would be required to estimate the timing of their option exercises and award expirations or settlements while the expected payout levels with performance contingencies, pretax income and changes in share-prices. With every new awards or settlements, organizations may be required to redesign such compensation programs in a way that enhances their ability to accurately forecast their impact on future income tax expenses. The choice of compensation is vital despite the fact that piece rates may not be as good (Onaolapo & Odetayo, 2012). In order to maintain equilibrium, organizations must choose a compensation method that is based on costs and benefits of different schemes with organizations that compensate on hourly base finding benefits outweighing the costs of low output.
IFRS2
Share based payment or IFRS 2 applies when an organization receives or acquires goods for equity-based payment. Such goods or products may encompass property, inventories, intangible assets, plant and equipment or other type of non-financial assets. IFRS 2 however have to exceptions to the rules that apply in share-based payment: shares offered in a business combination and which are treated under IFSR 3 and contracts of purchases of products which falls under IAS 32 or ISA 39 scope. Furthermore, any purchase of treasury shares is not included under IFRS 2 scope as is in the case of right issues where employees are shareholders of the company (Lantto & Sahlstrom, 2008). IFRS 2 arrangements would in case includes things such as call options, share ownership schemes, share appreciation rights and payments rendered to external consultants and which are related to equity capital.
IFRS 2 standards require that expenses for goods and services acquired for the company be recognized in the accounting books. In this case, the corresponding entry can either be a rise in the amount of equity that the company holds or the liability that the company faces. This is however dependent on whether the specified transaction is to be settled in terms of equity shares or cash. Good acquired in equity based transactions need to be recognized at the time or the date when they are received. This is unlike the case of services acquired. In case shares which vest immediately have been issued, then these can be assumed as presenting past services (Horton & Serafeim, 2010). This calls for immediate recognition of the expense undergone. On the other hand, if the share options are vested in the future, then it would be safe to assume that the corresponding equity instruments are related to future services which would essentially require the transaction to be spread over the specified period.
IFRS 2 standards provide that a grant of equity instrument is conditional when it satisfies certain vesting conditions. For instance, a grant of s...