Topics In Long Term Liabilities and Equity

SHARE-BASED COMPENSATION FSA TOPICS IN LONG TERM LIABILITIES AND EQUITY: SHARE-BASED COMPENSATION     Intention:  align employees’ interests with those of the shareholders(not with management)  attracting new employees,  retaining and motivating existing employees Drawbacks:  Stock option grants may lead managers to be either risk adverse or have the opposite effect (i.e., encourage excessive risk taking).  Dilution suffered by existing shareholders.  Decrease in earnings.  Accrual of liability in case we have cash based share compensation. Just like pension, this is also common type of deferred compensation. Unlike pension, share-based compensation tends to be highly concentrated among more senior-level employees such as executives as well as directors Share-Based Compensation Equity Settled Cash Settled (either grants or options are issued) (based on Share price performance) Stock grants ( Direct gifts of company stock to individuals, often as compensation or incentives.) Outright Grants (Direct gifts of company stock to individuals without any conditions or restrictions.) Restricted Grants (Company stock given to individuals with specific limitations or conditions on when it can be fully owned or transferred.) Stock options ( Rights to buy or sell company stock at a set price within a timeframe, usually part of employee compensation.) Stock appreciation rights ( Entitlements for employees to gain from the increased value of company shares, often settled in cash or additional stock.) Phantom stock (Mimics actual stock ownership for employees without granting equity, usually paid out in cash or stock equivalent to the company's stock value increase.) Performance Grants (Company stock awarded to individuals based on achieving predetermined performance goals or metrics.) 1|Page SHARE-BASED COMPENSATION LOS C :PRESENTATION AND DISCLOSURE OF SHARE-BASED COMPENSATION Companies must disclose information about their share-based compensation programs in their financial statements to help users understand the nature and extent of these arrangements. These disclosures typically appear in a note to the financial statements and must follow guidelines set out in IFRS 2. Key required disclosures include: 1. Description of Share-Based Payment Arrangements: Companies must detail each type of share-based payment arrangement, outlining their general terms and conditions. This includes specifics like vesting requirements, maximum option terms, and how the options can be settled (cash or equity). 2. Options Details: Companies need to provide information about options, such as:  Number of options outstanding at the start of the period  Options granted during the period  Options forfeited, exercised, or expired during the period  Number of options outstanding and exercisable at the end of the period 3. Other Equity Instruments: Disclosure is required for equity instruments beyond share options granted during the period. This includes detailing the number, weighted average fair value of these instruments at the measurement date, and information on how this fair value was determined. These disclosures aim to give a comprehensive view of the company's share-based compensation arrangements, their impact on financials, and the potential future cash flows and expenses associated with these plans. They provide transparency to stakeholders about the company's equity-related activities and their implications for its financial position. 2|Page