Coming soon: Accounting standard for share-based payments for certain companies


Small businesses with an annual turnover of less than 250 crore will soon get an accounting standard on “share-based payments” to meet if the CA Institute is successful.

The CA Institute has embarked on an exercise to develop an accounting standard also for unincorporated entities in the country which increasingly rely on share-based payments.

In India, there are two types of accounting standards – accounting standards and Indian accounting standards (Ind AS).

The proposed accounting standard on “share-based payments” (AS 102) will form part of the set of “accounting standards” and will not form part of the AS Ind, which applies to large listed entities.

Until now, the ICAI had only a guidance note on “share-based payments” for entities required to adopt accounting standards. The ICAI has now decided to move from a guidance note level to a full-fledged accounting standard and has therefore introduced an exposure draft of this new accounting standard (AS 102) for this purpose, sources said. “The new accounting standard will be largely similar to the guidance note,” they added.

Redesign and upgrade

The CA Institute is reorganizing and upgrading all of its 30 or so accounting standards as a separate project. This new AS 102 will also be notified when all 30 or so accounting standards are notified at once after the project is completed, sources said.

Interestingly, this new AS-102 provides guidance regarding the employee share-based payment plan administered through a trust. Ind AS 102 – which applies to large listed companies – does not deal with the same thing.

Stakeholders and the public had until August 7 to send their comments on the proposed accounting standard.

Share-based payments have gained momentum in the Indian business landscape. Capital market regulator SEBI recently proposed in a consultation paper that companies be allowed to offer stock options to non-permanent employees and non-executive directors of the company. The regulator may possibly see the benefit of allowing stock options to contract or part-time workers or temporary workers who may not be “employed” by the company (such as delivery services, transport services, etc. provided to a web platform).

Derivatives accounting

In the meantime, the CA Institute has developed a revised guidance note on “Accounting for Derivative Contracts”. The previous guidance note on this topic was published in 2015. The latest revision comes in the wake of global developments regarding Interbank Offered Rates (IBORs), which have been revised.

He may recall that a report on “Reform of the main benchmarks of interest rates” was published by the Financial Stability Board (FSB). As a result, some major interest rate benchmarks like LIBOR will cease to be published globally after December 2021.

The ongoing reform of IBORs will have an impact on the way financial information is recorded in the financial statements. The guidance note has been revised primarily to address replacement hedge accounting issues arising from the reform of benchmark interest rates.

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