Document ID: chunk:federal_register_of_legislation:F2022C00493:reg:10:p2
Version: federal_register_of_legislation:F2022C00493
Segment Type: reg
Provision Reference: reg 10 (pt 2/4)
Character Range: 230760–233505

and are therefore, in effect, share option plans. For example, an ESPP might include a 'look-back feature', whereby the employee is able to purchase shares at a discount, and choose whether the discount is applied to the entity's share price at the date of grant or its share price at the date of purchase. Or an ESPP might specify the purchase price, and then allow the employees a significant period of time to decide whether to participate in the plan. Another example of an option feature is an ESPP that permits the participating employees to cancel their participation before or at the end of a specified period and obtain a refund of amounts previously paid into the plan.
However, in this example, the plan includes no option features. The discount is applied to the share price at the purchase date, and the employees are not permitted to withdraw from the plan.
Another factor to consider is the effect of post-vesting transfer restrictions, if any. Paragraph B3 of AASB 2 states that, if shares are subject to restrictions on transfer after vesting date, that factor should be taken into account when estimating the fair value of those shares, but only to the extent that the post-vesting restrictions affect the price that a knowledgeable, willing market participant would pay for that share. For example, if the shares are actively traded in a deep and liquid market, post-vesting transfer restrictions may have little, if any, effect on the price that a knowledgeable, willing market participant would pay for those shares.
In this example, the shares are vested when purchased, but cannot be sold for five years after the date of purchase. Therefore, the entity should consider the valuation effect of the five-year post-vesting transfer restriction. This entails using a valuation technique to estimate what the price of the restricted share would have been on the purchase date in an arm's length transaction between knowledgeable, willing parties. Suppose that, in this example, the entity estimates that the fair value of each restricted share is CU28. In this case, the fair value of the equity instruments granted is CU4 per share (being the fair value of the restricted share of CU28 less the purchase price of CU24). Because 64,000 shares were purchased, the total fair value of the equity instruments granted is CU256,000.
In this example, there is no vesting period. Therefore, in accordance with paragraph 14 of AASB 2, the entity should recognise an expense of CU256,000 immediately.
However, in some cases, the expense relating to an ESPP might not be material. AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors states that the accounting policies in Australian Accounting Standards need not be