Financial Reporting: Analyzing AASB 2 Share-Based Payment Implications

This essay explores the implications of AASB 2, the Australian Accounting Standards Board standard, on financial reporting practices. It focuses on the impact of share-based payment transactions, particularly those involving share options granted to employees. Before AASB 2, companies in Australia did not journal these transactions, potentially misrepresenting financial data. The standard mandates the recognition of these transactions in the profit and loss statement and balance sheet, ensuring more accurate financial reporting. The essay outlines the scope of AASB 2, including its applicability to various forms of share-based payments, whether settled in equity or cash, and the conditions under which services or products are recognized. It explains how companies must identify and measure the services or products purchased, recognizing an increase in equity or liabilities accordingly. The essay also emphasizes the importance of re-measuring the fair value of liabilities in cash-settled transactions and recognizing expenditure when services or products are utilized. The introduction of AASB 2 aims to provide a more transparent and reliable view of a company's financial performance and position by capturing the costs associated with employee compensation through share options. This leads to more accurate and reliable financial reporting.

Running head: ESSAY 0
ADVANCE ACCOUNTING PRINCIPLE AND PRACTICE
DECEMBER 29, 2018
STUDENT DETAILS:

ESSAY 1
Assignment 1
In Australia, before the issue of AASB 2 in the year 2005, if the company provided the
workers and administrative share options, no entries in the journal were practised. It resulted
in companies making remuneration the workers and the administration by means of share
options as there was no effect on the profits that lead to the provisions of inexact and false
data on the company’s act. AASB 2 states the impact of the transactions related to share-
based payment in financial systems such as profit and loss, and balance sheet (Smith, 2018).
AASB 2 is applicable to the transaction related to share-based payment where company
purchases or takes services and products. The products include the inventory, properties,
consumable, equipment, plants, intangible assets, and various non-financial assets. The
services involve the service given by the workers or outer persons such as advisors.
As per the AASB 2, share-based payment transactions refer to the transactions where the
company-
(a) Accepts service or product from a dealer of the products and services in the share-
based payment arrangements, or
(b) Gets the duty to reconcile transactions regarding share-based payment arrangement
where other group company takes the service and product.
AASB 2 describes the share-based payment arrangement. As per AASB 2, share-based
payment arrangement refers to the contract between companies and other people like
personnel of the company that companies the other people to take or accept:
(a) cash or other asset of the company, which are based on equity instrument's value of a
company or other group companies; or

ESSAY 2
(b) Equity instruments such as shares and share options of the company, and other group
company, given the particular vesting conditions are fulfilled (Lovell, 2014).
The share-based payment transactions may be settled by other group entity (the shareholders
of the group company) on behalf of a company taking and purchasing the service and
product. Further, paragraph 2 is very relevant. It is applicable to the company that:
(a) Takes service or product when another company in a similar group has the duty for
the settlement of transactions related to share-based payment; or
(b) Has a duty to make the settlement of the transactions related to share-based payment
when another company in similar groups take services and products,
except the transactions are simply for the objective other than payments for the products
or services delivered to the company taking them (Wall, 2015).
Furthermore, the purpose of the AASB 2 is to state the financial reporting by the company
while this carries out the transactions related to share-based payment. Particularly, this needs
the company to reveal in the profits or losses and economic position the effect of transactions
related to share-based payments, involving the expenditures connected with the transactions
where the share options are provided to the personnel of company (Jin, Shan and Taylor,
2015).
The company should apply the AASB 2 in accounting for transactions related to share-based
payment, whether or not a company may recognise particularly certain or all products or
services taken, involving:
(a) Transaction-related to share-based payment settled with equity,
(b) Transaction-related to share-based payment settled with cash, and

ESSAY 3
(c) Transactions where the company purchases or accepts products or services and terms of
arrangement render either the company or the dealer of those products or services with the
option of whether the company settles transactions in cash and asset or by allotting equity,
except as stated in paragraph 3A–6. In absence of particularly recognised products or service,
other situations can specify that services or products will be received, where this Standard is
applied (Sugiyama and Islam, 2016).
After the introduction of AASB 2, the company should identify the services or products
purchased or taken in the transactions related to share-based payment while this gets the
products or as services are taken. The company should identify the equivalent increment in
the equity if services or products were taken in the equity-settled transactions related to share-
based payment, or the liabilities if services or products were purchased in the cash-settled
transactions. At what time the services or products purchased or taken in the transactions
related to share-based payment don’t fulfil criteria for the identification as assets, they must
be recorded as the expenditures (Ahmed and Ndayisaba, 2016).
Characteristically, the expenditure incurs from the utilization of the service or product. For an
instance, the services are normally used instantly, in the matter where the expenditure is
identified as the counterparty makes the services. The products may be used over the time, in
case of inventory, traded afterwards, where case an expenditure is identified when the
products are used or traded (AASB, 2015). Though, at times this is essential to identify the
expenditure before the services or products are utilised or traded because they don't fulfil the
conditions for identification as the asset. Regarding the cash-settled transactions related to
share-based payment, a company should examine the services or products purchased and the
responsibility raised at the fair value of the liabilities. In anticipation of the liabilities are
settled, the company should measure again FV of the liabilities at end of every reporting time
or on settlement date, with modifications in FV identified in profit or loss for relevant time.

ESSAY 4
It is required that the company should identify the services taken, and the legal responsibility
to pay for these services, as the workers give services (Mackay, 2015).

ESSAY 5
References
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Lovell, H. (2014) Climate change, markets and standards: the case of financial
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