Expert Insights into Key Accounting Matters and Accounting Standards

In today’s thriving start-up ecosystem, stock options are a potent tool for management to attract and retain talent and align employee interests with shareholders. Once confined to listed companies, this practice has now permeated unlisted firms, driven by the rise of new-age entrepreneurs.

Ind AS 102, ‘Share-based Payment’, outlines the accounting treatment for all share-based payments, mirroring IFRS 2 standards. While comprehensive, this standard highlights key requirements for management to consider in share-based payment transactions.

Accounting Considerations for Share-Based Payments

Identifying cash-settled vs equity-settled plans: An equity-settled share-based payment transaction involves an entity receiving goods and services in exchange for its equity instruments. Conversely, a cash-settled share-based payment transaction occurs when an entity receives goods or services and accrues a liability to the supplier based on the price or value of the entity’s equity instruments or those of another group entity.

Transaction with settlement alternative: Share-based payment transactions often offer the entity or the counterparty the option to settle in shares (or other equity instruments) or cash (or other assets). The accounting treatment varies based on whether the counterparty or entity makes the choice.

Payment through shares to non-employees: There is a common misconception that accounting for share-based payment transactions only applies when stock options are granted to employees. However, the scope of Ind AS 102 extends beyond transactions with employees. For instance, if an external supplier of goods or services is compensated with shares or cash based on the price or value of the entity’s or group entity’s equity instruments, Ind AS 102 must be adhered to.

Share-based payment transactions within a group of entities: In large multinational corporations, it’s common for subsidiary employees to receive a portion of their compensation in shares of the parent company or occasionally in shares of another group entity. Ind AS 102 mandates that the entity benefiting from the services recognises an expense in these scenarios.

Cancelling stock options: In merger and acquisition transactions, it’s typical for the acquired company to nullify the stock options granted to its employees. Often, the acquired company compensates its employees with cash instead of cancelling the stock options. Additionally, entities commonly revoke stock options granted to employees when the conditions for the award become excessively burdensome or when the share price falls significantly below the option’s exercise price, rendering it unlikely for the option to be profitable to the holder throughout its lifespan.

Share-based award modification: When an award is altered, the entity must recognise, at a minimum, the cost of the original award as if it had not been modified. That entails recognising the fair value at the original grant date, spread over the initial vesting period, and subject to the original vesting conditions unless the award fails to vest due to a specified condition at the grant date. Additionally, any modifications that increase the award’s fair value necessitate further recognition of costs. These additional costs are spread from the modification date until the vesting date of the modified award, which may differ from that of the original award.


Accounting for share-based payments presents a complex challenge. Understanding the nuances of Ind AS 102 is crucial for accurately navigating this area of accounting. A comprehensive understanding of Ind AS 102 is essential to maintain the accuracy and reliability of financial statements in today’s dynamic business environment.