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4.5 Classification of instruments as liabilities or equity
Publication date: 30 Nov 2022
us IFRS & US GAAP guide
Although ASC 718 and IFRS 2 contain a similar principle for classification of stock-based compensation awards, certain awards will be classified differently under the two standards. In some instances, awards will be classified as equity under US GAAP and a liability under IFRS, while in other instances awards will be classified as a liability under US GAAP and equity under IFRS.
US GAAP | IFRS |
ASC 718 contains guidance on determining whether to classify an award as equity or a liability. ASC 718 also references the guidance in ASC 480, Distinguishing Liabilities from Equity, when assessing classification of an award.
In certain situations, puttable shares may be classified as equity awards, as long as the recipient bears the risks and rewards normally associated with equity share ownership for a reasonable period of time (defined as 6 months).
Liability classification is required when an award is based on a fixed monetary amount settled in a variable number of shares.
| Under IFRS, equity/liability classification for share-based awards is determined wholly on whether the awards are ultimately settled in equity or cash.
Puttable shares are always classified as liabilities, even if the put cannot be exercised for an extended period of time.
Share-settled awards are classified as equity awards even if there is variability in the number of shares due to a fixed monetary value to be achieved.
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