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meet specified performance targets (such as a specified increase in the entity’s profit over a specified period of time) (IFRS 2, Appendix A) (4). A performance condition might include a market condition. A market conditionis a condition upon which the exercise price, vesting or exercisability of an equity instrument depends that is related to the market price of the entity’s equity instruments, such as attaining a specified share price or a specified amount of intrinsic value of a share option, or achieving a specified target that is based on the market price of the entity’s equity instruments relative to an index of market prices of equity instruments of other entities (IFRS 2, Appendix A).(5)The following flow chart illustrates the evaluation of whether a condition is a service or performance condition or a non-vesting condition and gives an example of each of the various conditions as they might apply to a share option: (4)In the absence of explicit guidance in the IFRS for SMEsan entity can (but is not required to), in accordance with paragraph 10.6, consider the requirements and guidance in full IFRSs.(5) An unlisted entity may determine the price of its shares using a valuation technique as discussed in paragraphs 26.10(c) and 26.11(c). Does the condition determine whether the entity receives the services that entitle the counterparty to the share-based payment? No Non-vesting condition (Eg the share option cannot be exercised unless the silver commodity index exceeds a specific level, eg 3,300, on a set date) Does the condition require onlya specified period of service to be completed? Yes NoService condition (Eg the share option cannot be exercised unless the employee remains employed by the company for the three years following grant of the option) YesPerformance condition (Eg the share option cannot be exercised unless the company’s profit before tax for a specified period exceeds a specified amount and the employee remains employed by the company for the three years following grant of the option)
Module 26 – Share-based Payment IFRS Foundation: Training Material for the IFRS®for SMEs(version 2013-09) 15 An example of a market performance condition is achieving a specified increase in a share price and an example of a non-market performance condition is achieving a specified increase in profit. Employee share-based payment transactions generally have vesting conditions attached. Guidance on how to reflect these conditions in the measurement of the ‘fair value’ of the equity instruments is set out in paragraph 26.9. The conditions are taken into account as follows: Service conditions and non-market performance vesting conditions—the grant date ‘fair value’ of the equity instruments granted does not reflect these conditions. The fair value is measured as though these conditions did not exist.