Category 7 Employee Commuting – The best calculation guidance

Category 7 Employee Commuting

Category description – Category 7 Employee Commuting includes emissions from the transportation of employees1 in this category, as well as consultants, contractors, and other individuals who are not employees of the company, but commute to facilities owned and operated by the company) between their homes and their worksites.

Emissions from employee commuting may arise from:

  • Automobile travelCategory 7 Employee Commuting
  • Bus travel
  • Rail travel
  • Air travel
  • Other modes of transportation (e.g., subway, bicycling, walking).

Companies may include emissions from teleworking (i.e., employees working remotely) in this category.

A reporting company’s scope 3 emissions from employee commuting include the scope 1 and scope 2 emissions of employees and third-party transportation providers.

Overview – Category 7 Employee Commuting

Reporting for Category 7 Employee Commuting involves documenting and disclosing information related to greenhouse gas (GHG) emissions resulting from employees’ travel to and from their workplace. This reporting process is typically conducted as part of broader sustainability or corporate social responsibility (CSR) reporting efforts aimed at transparency, accountability, and performance tracking. Here’s a comprehensive overview of reporting for Category 7 Employee Commuting:

Purpose of Reporting:

  1. Transparency: Reporting on employee commuting emissions provides stakeholders, including employees, investors, customers, and communities, with transparent information about the environmental impact of the organization’s operations.
  2. Accountability: By disclosing commuting-related emissions data, organizations demonstrate accountability for their environmental footprint and commitment to addressing climate change and sustainable transportation.
  3. Performance Tracking: Reporting allows organizations to track trends, set targets, and measure progress over time in reducing commuting-related emissions, supporting continuous improvement and goal achievement.

Components of Reporting:

  1. Emissions Inventory: Organizations quantify and document GHG emissions associated with employee commuting, including emissions from different transportation modes (e.g., personal vehicles, public transit, walking, cycling) and indirect emissions from energy consumption and infrastructure.
  2. Data Collection and Analysis: Data collection methods may include employee surveys, transportation logs, fuel consumption records, public transit ridership data, and vehicle fleet tracking systems. Analysis of collected data identifies commuting patterns, emission hotspots, and opportunities for emissions reduction.
  3. Metrics and Indicators: Reporting may include various metrics and indicators to communicate commuting-related emissions data effectively, such as total emissions (in metric tons of CO2e), emissions per employee, emissions per mode of transportation, and emission intensity per unit of distance traveled.
  4. Trends and Comparisons: Reporting may involve analyzing trends in commuting-related emissions over time, comparing emissions data across different geographic locations, business units, or employee demographics, and benchmarking performance against industry peers or best practices.

Reporting Guidelines and Standards:

  1. Global Reporting Initiative (GRI): GRI standards provide guidelines for reporting on sustainability issues, including transportation-related emissions, in corporate sustainability reports. GRI Indicator 305-3 specifically addresses emissions from commuting.
  2. Carbon Disclosure Project (CDP): CDP collects data from companies on their environmental performance, including emissions from employee commuting, and provides a platform for disclosure and benchmarking.
  3. ISO 14064: ISO 14064 is an international standard for greenhouse gas accounting and reporting, providing guidelines and principles for quantifying and reporting GHG emissions, including those from employee commuting.

Stakeholder Engagement:

  1. Internal Stakeholders: Engaging employees in the reporting process, such as through surveys, focus groups, or sustainability committees, fosters awareness, participation, and ownership of commuting-related emissions reduction initiatives.
  2. External Stakeholders: Communicating commuting-related emissions data to external stakeholders, such as investors, customers, regulators, and community organizations, demonstrates transparency, builds trust, and supports informed decision-making.

Continuous Improvement and Goal Setting:

  1. Target Setting: Organizations may set targets and goals for reducing commuting-related emissions, such as reducing emissions per employee, increasing the use of sustainable transportation modes, or implementing telecommuting policies.
  2. Implementation of Initiatives: Reporting informs the development and implementation of initiatives and programs aimed at reducing commuting-related emissions, such as promoting public transit use, incentivizing carpooling, providing bicycle infrastructure, and supporting telecommuting arrangements.
  3. Monitoring and Evaluation: Regular monitoring and evaluation of commuting-related emissions data enable organizations to assess the effectiveness of implemented initiatives, identify areas for improvement, and adjust strategies as needed to achieve emission reduction targets.


Reporting for Category 7 Employee Commuting is a vital component of sustainability and CSR reporting efforts, providing stakeholders with transparent information about an organization’s environmental impact and commitment to sustainable transportation practices. By quantifying and disclosing commuting-related emissions data, organizations can track performance, set targets, engage stakeholders, and implement initiatives to reduce emissions and contribute to a more sustainable and resilient future.

Practical examples

Here are some practical examples of how organizations can address and report on Category 7 Employee Commuting:

1. Commuting Surveys:

Conducting regular commuting surveys among employees to gather data on commuting patterns, preferences, and transportation modes used. The collected information can be analyzed to identify the most common commuting modes, distances traveled, and emission hotspots.

2. Emissions Calculation Tools:

Implementing emissions calculation tools or carbon footprint calculators that allow employees to estimate the carbon emissions associated with their commute based on factors such as distance traveled, vehicle type, fuel efficiency, and public transit usage. This data can be aggregated to provide an overall picture of commuting-related emissions.

3. Telecommuting Policies:

Developing and promoting telecommuting policies that allow employees to work remotely from home or other locations, reducing the need for daily commuting and associated emissions. Organizations can track the number of telecommuting days or hours logged by employees as part of their reporting efforts.

4. Sustainable Transportation Incentives:

Offering incentives and rewards for employees who use sustainable transportation modes for their commute, such as public transit subsidies, bike purchase discounts, carpooling rewards, or flexible work hours to accommodate alternative commuting schedules.

5. Transportation Demand Management Programs:

Implementing transportation demand management (TDM) programs aimed at reducing single-occupancy vehicle trips and promoting alternative transportation modes. This can include providing shuttle services, carpool matching services, designated carpool parking spots, and installing bike racks or bicycle storage facilities.

6. Commuter Benefits Programs:

Participating in commuter benefits programs that allow employees to use pre-tax dollars to pay for eligible commuting expenses, such as public transit passes, vanpool expenses, and bicycle commuting costs. Organizations can track participation rates and cost savings achieved through these programs.

7. Employee Engagement and Education:

Engaging employees through education and awareness campaigns on the environmental impact of commuting and the benefits of using sustainable transportation modes. Providing resources, such as commuting guides, alternative transportation maps, and sustainability tips, can help employees make informed choices about their commute.

8. Reporting and Benchmarking:

Regularly reporting on commuting-related emissions data, including total emissions, emissions per employee, and emissions per mode of transportation, as part of the organization’s sustainability or CSR reporting efforts. Benchmarking performance against industry peers or best practices can help identify areas for improvement and set realistic emission reduction targets.

By implementing these practical examples and incorporating them into their reporting processes, organizations can effectively address Category 7 Employee Commuting and demonstrate their commitment to reducing emissions and promoting sustainable transportation practices.

Calculating emissions from Category 7 employee commuting

Figure 7.1 offers a decision tree for selecting a calculation method for scope 3 emissions from employee commuting.

Companies may use one of the following methods:

  • Fuel-based method, which involves determining the amount of fuel consumed during commuting and applying the appropriate emission factor for that fuel
  • Distance-based method, which involves collecting data from employees on commuting patterns (e.g., distance travelled and mode used for commuting) and applying appropriate emission factors for the modes used
  • Average-data method, which involves estimating emissions from employee commuting based on average (e.g., national) data on commuting patterns

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Category 6 Business Travel – The best calculation guidance

Category 6 Business Travel

Category description – Category 6 Business Travel includes emissions from the transportation of employees for business-related activities in vehicles owned or operated by third parties, such as aircraft, trains, buses, and passenger cars.

This guidance page for Category 6 Business Travel serves as a companion to the Scope 3 Standard to offer companies practical guidance on calculating their scope 3 emissions. It provides information not contained in the Scope 3 Standard, such as methods for calculating GHG emissions for each of the 15 scope 3 categories, data sources, and worked examples.

Overview  – Category 6 Business Travel

Category 6 Business Travel refers to a specific classification within greenhouse gas (GHG) emissions accounting, focusing on emissions resulting from travel activities undertaken by employees for business purposes. These emissions include both direct emissions from modes of transportation, such as air travel and road transport, as well as indirect emissions associated with travel-related activities, such as accommodation and meals. Here’s a comprehensive overview:

Definition and Classification:

  1. Scope 1, 2, and 3 Emissions: GHG emissions are categorized into three scopes by the Greenhouse Gas Protocol. Scope 1 emissions are direct emissions from sources owned or controlled by the company, while Scope 2 emissions are indirect emissions from purchased electricity, heat, or steam. Scope 3 emissions encompass all other indirect emissions, including those associated with business travel.
  2. Category 6 Emissions: Within Scope 3 emissions, Category 6 specifically focuses on business travel. These emissions include both direct emissions from transportation modes used for business travel and indirect emissions associated with travel-related activities, such as accommodation, meals, and commuting to and from travel hubs.


  1. Variety of Travel Modes: Business travel can involve various modes of transportation, including air travel, road transport (e.g., car, bus), rail travel, and maritime transport, depending on the distance traveled and destination.
  2. Global Reach: Business travel activities often span multiple regions and countries, contributing to emissions from long-haul flights, intercity road trips, and international travel, which may have different environmental impacts based on distance and transportation mode.
  3. Emission Intensity: The carbon intensity of different travel modes varies significantly, with air travel generally having a higher emissions footprint per passenger-kilometer compared to road or rail transport, due to factors such as fuel efficiency and distance traveled.

Examples:Category 6 Business Travel

  1. Air Travel: Emissions resulting from flights taken for business purposes, including domestic and international travel for meetings, conferences, client visits, and training sessions.
  2. Road Transport: Emissions from road travel, including commuting to and from airports, train stations, or other travel hubs, as well as rental car or taxi services used during business trips.
  3. Rail and Public Transport: Emissions associated with rail travel, bus travel, and other forms of public transportation used for business purposes, particularly for shorter distances or within urban areas.
  4. Accommodation and Meals: Indirect emissions resulting from accommodation, meals, and other travel-related activities, including hotel stays, restaurant meals, and event catering during business trips.


  1. Operational Efficiency: Managing Category 6 emissions is essential for optimizing business travel practices, reducing costs, and improving operational efficiency by minimizing unnecessary travel and promoting alternative communication methods, such as video conferencing and telecommuting.
  2. Environmental Impact: Business travel contributes to GHG emissions, air pollution, and resource consumption, highlighting the importance of implementing sustainable travel policies and practices to mitigate these impacts and promote environmental stewardship.
  3. Employee Well-being: Balancing the need for business travel with considerations for employee well-being, work-life balance, and health and safety during travel is essential for fostering a supportive and sustainable corporate culture.


  1. Travel Policies: Establishing clear and comprehensive travel policies, including guidelines for trip approval, travel booking, transportation mode selection, and reimbursement procedures, can help standardize travel practices and promote sustainability.
  2. Alternative Solutions: Promoting alternative solutions to in-person meetings, such as video conferencing, telecommuting, and virtual collaboration tools, can help reduce the need for business travel and lower associated emissions while maintaining productivity and communication.
  3. Carbon Offsetting: Implementing carbon offsetting initiatives, such as investing in renewable energy projects or reforestation efforts to mitigate the environmental impact of business travel emissions, can help companies achieve carbon neutrality and support sustainability goals.


Category 6 Business Travel represents a significant aspect of a company’s environmental impact, reflecting emissions associated with travel activities undertaken for business purposes. By addressing these emissions and implementing sustainable travel policies and practices, companies can minimize their environmental footprint, reduce costs, and promote employee well-being, contributing to a more sustainable and responsible approach to business travel.

Emissions from transportation in vehicles owned or controlled by the reporting company are accounted for in either scope 1 (for fuel use), or in the case of electric vehicles, scope 2 (for electricity use). Emissions from leased vehicles operated by the reporting company not included in scope 1 or scope 2 are accounted for in scope 3, category 8 (Upstream leased assets). Emissions from transportation of employees to and from work are accounted for in scope 3, category 7 (Employee commuting). See table 6.1.

Category 6 Business Travel

Emissions from business travel may arise from:

Companies may optionally include emissions from business travelers staying in hotels.

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Metrics in use for ESG Reporting- 1 Best and complete read

Metrics in use for ESG Reporting

Here is a list of Metrics in use for ESG Reporting that companies can use to start communicating on the ESG issues. The metrics have been divided into four categories:

Each category contains recommended disclosure metrics (both qualitative and quantitative) that have been marked either as minimum disclosures (relevant to all companies) or additional disclosures (that might not be relevant to all companies).

The selection of recommended disclosure metrics has been informed by relevant regulatory initiatives i.e. the CSRD and the ESRS as well as the Warsaw Stock Exchange corporate governance code. Moreover, to address increasing investors’ data needs, they have been also aligned with the mandatory PAI indicators for corporate investments required by the SFDR (see mapping in the Appendix – Relevance of the Guidelines to investors). References have been added below each section to other frameworks and resources that companies may also consider (Appendix – Alignment with EU regulations and other frameworks).

It should be emphasized that the Guidelines do not provide an exhaustive list of indicators and topics. Rather they aim to offer less advanced companies a minimum set of carefully selected disclosure metrics that will help them to prepare for the upcoming requirements stemming from the CSRD and the ESRS and better respond to investors’ ESG data needs. Companies in scope of the CSRD should use the ESRS to prepare their disclosures on material sustainability topics.

Metrics in use for ESG Reporting – General information

General information metrics provide essential context to understand the company business activities and value creation model, it’s material ESG impacts, risks and opportunities, and how it is managing them.

General information

What should be disclosed:


M 1

Business model

  • Short description of the company business model and value chain.
  • Whether the company is active in the following sectors: fossil fuel (coal, oil and gas), controversial weapons along with related revenues.

Companies may consider including the following characteristics when describing their business model: economic activities; products and services offered; markets of operation, company size (in terms of workforce, business locations, revenue, etc.)


M 2

Sustainability integration

  • Whether and how sustainability matters are integrated in the company strategy and business model.
  • Resilience of the company strategy and business model(s) to material sustainability risks.
  • Policies and actions adopted to manage material sustainability matters.
  • Targets related to management of sustainability matters.


M 3

Sustainability governance

  • Governance bodies roles and responsibilities with regard to sustainability matters (e.g. in relation to risk management, target setting, sustainability disclosure).
  • Whether governance bodies are informed about sustainability matters, and how they are addressed by administrative and/or management bodies.
  • Whether incentive schemes are offered to members of governance bodies that are linked to sustainability matters.


M 4

Material impacts, Risk and Opportunities

  • The processes used to identify material impacts, risks and opportunities.
  • Sustainability due diligence process.
  • Outcome of the materiality assessment (identified material impacts, risks and opportunities).
  • How material impacts, risks and opportunities interact with the company strategy and business model.


M 5

Stakeholder engagement

  • Description of the company main stakeholders, and how the company engages with them.
  • How the interests and views of stakeholders are taken into account by the undertaking’s strategy and business model.

Metrics in use for ESG Reporting- Environmental disclosures

Environmental metrics cover issues that arise from or impact the natural environment.

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Example accounting policies

Example accounting policies

Get the requirements for properly disclosing the accounting policies to provide the users of your financial statements with useful financial data, in the common language prescribed in the world’s most widely used standards for financial reporting, the IFRS Standards. First there is a section providing guidance on what the requirements are, followed by a comprehensive example, easy to tailor to the specific needs of your company.Example accounting policies

Example accounting policies guidance

Whether to disclose an accounting policy

1. In deciding whether a particular accounting policy should be disclosed, management considers whether disclosure would assist users in understanding how transactions, other events and conditions are reflected in the reported financial performance and financial position. Disclosure of particular accounting policies is especially useful to users where those policies are selected from alternatives allowed in IFRS. [IAS 1.119]

2. Some IFRSs specifically require disclosure of particular accounting policies, including choices made by management between different policies they allow. For example, IAS 16 Property, Plant and Equipment requires disclosure of the measurement bases used for classes of property, plant and equipment and IFRS 3 Business Combinations requires disclosure of the measurement basis used for non-controlling interest acquired during the period.

3. In this guidance, policies are disclosed that are specific to the entity and relevant for an understanding of individual line items in the financial statements, together with the notes for those line items. Other, more general policies are disclosed in the note 25 in the example below. Where permitted by local requirements, entities could consider moving these non-entity-specific policies into an Appendix.

Change in accounting policy – new and revised accounting standards

4. Where an entity has changed any of its accounting policies, either as a result of a new or revised accounting standard or voluntarily, it must explain the change in its notes. Additional disclosures are required where a policy is changed retrospectively, see note 26 for further information. [IAS 8.28]

5. New or revised accounting standards and interpretations only need to be disclosed if they resulted in a change in accounting policy which had an impact in the current year or could impact on future periods. There is no need to disclose pronouncements that did not have any impact on the entity’s accounting policies and amounts recognised in the financial statements. [IAS 8.28]

6. For the purpose of this edition, it is assumed that RePort Co. PLC did not have to make any changes to its accounting policies, as it is not affected by the interest rate benchmark reforms, and the other amendments summarised in Appendix D are only clarifications that did not require any changes. However, this assumption will not necessarily apply to all entities. Where there has been a change in policy, this will need to be explained, see note 26 for further information.

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Employee benefits accounting policies

Employee benefits accounting policies

This is a separated part of the example accounting policies, it is separated because of the size of this note and the specific nature of employee benefits.

Example accounting policies – Introduction

Get the requirements for properly disclosing the accounting policies to provide the users of your financial statements with useful financial data, in the common language prescribed in the world’s most widely used standards for financial reporting, the IFRS Standards. Here is a section providing guidance on what the requirements are, below a comprehensive example is provided, easy to tailor to the specific needs of your company.

Employee benefits Guidance

Presentation and measurement of annual leave obligations

RePort Plc has presented its obligation for accrued annual leave within current employee benefit obligations. However, it may be equally appropriate to present these amounts either as provisions (if the timing and/or amount of the future payments is uncertain, such that they satisfy the definition of ‘provision’ in IAS 37) or as other payables.

For measurement purposes, we have assumed that RePort Plc has both annual leave obligations that are classified as Employee benefits accounting policiesshort-term benefits and those that are classified as other long-term benefits under the principles in IAS 19. The appropriate treatment will depend on the individual facts and circumstances and the employment regulations in the respective countries.(IAS19(8),(BC16)-(BC21))

To be classified and measured as short-term benefits, the obligations must be expected to be settled wholly within 12 months after the end of the annual reporting period in which the employee has rendered the related services. The IASB has clarified that this must be assessed for the annual leave obligation as a whole and not on an employee-by-employee basis.

Share-based payments – expense recognition and grant date

Share-based payment expenses should be recognised over the period during which the employees provide the relevant services. This period may commence prior to the grant date. In this situation, the entity estimates the grant date fair value of the equity instruments for the purposes of recognising the services received during the period between service commencement date and grant date.(IFRS2(IG4))

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Capitalisation of expenditure – 1 Complete answer

Capitalisation of expenditure

Capitalisation of expenditure is only possible when one of the following situations occur:

  • Capital expenditure (including equipment repairs and maintenance)
  • Recording lease contracts – Right-of-Use Assets
  • Capitalisation of borrowing costs
  • Capitalisation of cloud computing costs
  • Capitalisation of intangible assets
  • Capitalisation of internally capitalized intangible assets
  • Research & development costs
  • Prepaid expenses

Capital expenditure (including equipment repairs and maintenance)

The cost of an item of property, plant and equipment under IAS 16 Property, plant and equipment shall be recognised as an asset if, and only if:

  • it is probable that future economic benefits associated with the item will flow to the entity; and
  • the cost of the item can be measured reliably. (IAS 16.7)

Investment property

Certain properties which are used on rental are classified as an investment property in which case IAS 40 Investment property will apply. Only tangible items which have a useful life of more than one period are classified as property, plant and equipment as per IAS 16. But refer to the words “more than one period” as more than one accounting period of 12 months.

Also, an entity shall determine a threshold limit commensurate to its size for recognizing a tangible item as property, plant and equipment. For example, a tangible item of insignificant amount although satisfying the definition of property, plant and equipment may be expensed.

Initial recognition of indirect costs

Items of property, plant and equipment may be acquired for safety or environmental reasons. The acquisition of such property plant and equipment, although not directly increasing the future economic benefits of any particular existing item of property, plant and equipment, may be necessary for an entity to obtain the future economic benefits from its other assets.

Such items of property plant and equipment qualify for recognition as assets because they enable an entity to derive future economic benefits from related assets in excess of what could be derived had those items not been acquired.

Subsequent recognition of indirect costs

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The real meaning of Integrated reporting

The real meaning of integrated reporting

Integrated reporting is more than only aimed at informing interested stakeholders about performance achieved against targets, the vision and strategy adopted to serve the stakeholders’ interests, and other factors that can influence business performance in future.

Clearly regulations require companies to exercise transparency. However, a more fundamental reason for reporting lies in accountability: a company needs to account for the impact it has on the stakeholders it relates to. Not exercising such transparency would impose serious risks, including high financing costs to compensate for a lack of transparency or governance or, ultimately, losing the license to operate. By contrast, a transparent approach would not only improve reputation, but also would bind stakeholders such as employees to the company’s objectives.

The reason for including environmental and social factors in reporting

In today’s world companies play a significant role in shaping the future of society. Awareness of this has risen significantly over the last decades, resulting in changed attitudes towards the role business is expected to play.

It also resulted in changes in the views of business leaders about the role they want to play.

Business these days is seen more than ever as the agent of a wide group of stakeholders. Unlike the old paradigm that ‘the business of business is business’, companies accept wider accountability in current times towards the stakeholders whose interests they impact – no longer can companies focus only on the interests of those with a financial interest.

This wider accountability implies that companies have to fulfil the (information) needs of those who provide them with integrated reportingother economic resources such as labour, space, air or natural resources and those who enter into transactions with the organization such as customers. Therefore a company’s current performance and future ability to continue operations and achieve business growth needs to be evaluated on the basis of a comprehensive set of factors that influence these.

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Accounting for mergers – Best 2 Read

Accounting for mergers

Mergers and acquisitions (business combinations) can have a fundamental impact on the acquirer’s operations, resources and strategies. For most entities such transactions are infrequent, and each is unique. IFRS 3 ‘Business Combinations’ contains the requirements for accounting for mergers, which are challenging in practice.

This narrative provides a high-level overview of IFRS 3 and explains the key steps in accounting for business combinations in accordance with this Standard. It also highlights some practical application issues dealing with:

  • how to avoid unintended accounting consequences when bringing two businesses together, and
  • deal terms and what effect they can have on accounting for business combinations.

The acquisition method in accounting for mergers

IFRS 3 establishes the accounting and reporting requirements (known as ‘the acquisition method’) for the acquirer in a business combination. The key steps in applying the acquisition method are summarised below:

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Fair value employee share options in IFRS 2

Fair value employee share options

Share options give the holder the right to buy the underlying shares at a set price, called the ‘exercise price’, over or at the end of an agreed period. If the share price exceeds the option’s exercise price when the option is exercised, then the holder of the option profits by the amount of the excess of the share price over the exercise price. Benefit is derived from the right under the option to buy a share for less than its value.

The holder’s cost is the exercise price, whereas the value is the share price. It is not necessary for the holder to sell the share for this profit to exist. Sale only results in realisation of the profit. Because an option holder’s profit increases as the underlying share price increases, share options are used to incentivise employees to contribute to an increase in the price of the underlying shares.

Employee options are typically call options, which give holders the right but not the obligation to buy shares. However, other types of options are also traded in markets. For example, put options give holders the right to sell the underlying shares at an agreed price for a set period.

Given that holders of put options profit when share prices fall below the exercise price, such options are not viewed as aligning the interests of employees and shareholders. All references in this section to ‘share options’ are to employee call options.

Share options granted by entities often cannot be valued with reference to market prices. Many entities, even those whose shares are quoted publicly, do not have options traded on their shares. Options that trade on recognised exchanges such as the Chicago Board Options Exchange are created by market participants and are not issued by entities directly.

Even when there are exchange-traded options on an entity’s shares for which prices are available, the terms and conditions of these options are generally different from the terms and conditions of options issued by entities in share-based payments and, as a result, the prices of such traded options cannot be used directly to value share options issued in a share-based payment.

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Employee share purchase plans

Employee share purchase plans

In an ESPP, the employees are usually entitled to buy shares at a discounted price. The terms and conditions can vary significantly and some ESPPs include option features. (IFRS 2.IG17)

In my view, the predominant feature of the share-based payment arrangement determines the accounting for the entire fair value of the grant. That is, depending on the predominant features, a share purchase plan is either a true ESPP or an option plan.

All of the terms and conditions of the arrangement should be considered when determining the type of equity instruments granted and judgement is required. The determination is important because the measurement and some aspects of the accounting for each are different (see below).

Options are characterised by the right, but not the obligation, to buy a share at a fixed price. An option has a value (i.e. the option premium), because the option holder has the benefit of any future gains and has none of the risks of loss beyond any option premium paid. The value of an option is determined in part by its duration and by the expected volatility of the share price during the term of the option.

In my view, the principal characteristic of an ESPP is the right to buy shares at a discount to current market prices. ESPPs that grant short-term fixed purchase prices do not have significant option characteristics because they do not allow the grant holder to benefit from volatility. I believe that ESPPs that provide a longer-term option to buy shares at a specified price are, in substance, option plans, and should be accounted for as such. (IFRS 2.B4-B41)

Examples of other option features that may be found in ESPPs are: (IFRS 2.IG17)

  • ESPPs with look-back features, whereby the employees are able to buy shares at a discount, and choose whether the discount is applied to the entity’s share price at the date of the grant or its share price at the date of purchase;
  • ESPPs in which the employees are allowed to decide after a significant period of time whether to participate in the plan; and
  • ESPPs in which employees are permitted to cancel their participation before or at the end of a specified period and obtain a refund of any amounts paid into the plan.

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