Revising the number expected to vest: the cumulative catch-up

Learning objectives

• Explain that the number of instruments expected to vest is revised at each reporting date and that the adjustment is a cumulative catch-up.L2
• Calculate the expense of the period after revising the expected number.L2, L3
• Assess the effect on profit or loss of a revision of the estimate of leavers and justify the estimate.L3

Normative references

• IFRS 2 §19Vesting conditions other than market conditions are not taken into account when estimating the fair value of the instruments at the measurement date; instead, they are taken into account by adjusting the number of instruments included in the measurement, so that the amount recognised is ultimately based on the number of instruments that eventually vest: on a cumulative basis, no amount is recognised if such a condition is not satisfied (subject to para. 21).
• IFRS 2 §20To apply para. 19, the entity recognises during the vesting period an amount based on the best available estimate of the number of instruments expected to vest, revises that estimate if subsequent information so indicates, and on the vesting date aligns it with the number of instruments that ultimately vested (subject to para. 21).

Original summaries of the paragraphs (reference register), never a quotation of the standard.

4 questions

• An option plan has a three-year service condition. At the end of year two, the entity revises downwards, because of more departures than expected, the number of options it expects to vest. How does it treat this revision?L2
• Helia SA has granted options with a four-year service condition. At the end of year one, the cumulative expense recognised is {cumulative_expense_previous}. At the end of year two, the entity revises the number of options it expects to vest: the expected total cost becomes {total_expected_cost_revised} (case data; the grant-date fair value is unchanged). Case convention: the elapsed share of the vesting period is {elapsed_share}. Compute the cumulative expense at the end of year two and the expense for that year.L3
• A colleague writes: "At the N2 closing we revised downwards the number of options expected. This revision applies to future periods only: the N1 expense already recognised stays unchanged." What is the error?L2
• For an equity-settled option plan, the cumulative expense recognised at the previous closing is {cumulative_expense_previous}. At the year-end, the entity revises downwards the number of options expected because of more leavers, and the recomputed cumulative expense is {cumulative_expense_revised}. Record the entry for the year.L3