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UAE Financial Audit Explanation of Determination of Grant Date Based on IFRS 2

It is crucial for UAE financial audit specialists to determine the grant date because it is the date at which fair value is calculated for equity instruments. The grant date is usually the date that recognition of employee costs begins. This is not always true (Service commencement and grant dates in Determination the vesting period).

The 'Grant Date' is the date on which a UAE entity or employee agrees to a share-based arrangement. It requires that both the entity as well as the employee have a mutual understanding of the terms of the arrangement.

Both the offer and acceptance must be made to the employer and employee in order to "agree" to a share-based payments transaction, based on IFRS 2.IG2.

Communication By The Employer And Approval

If an agreement is subject to approval, the grant date can't be earlier than the date that the approval was obtained. A grant that is subject to approval, e.g. If a grant is subject to approval - e.g. by a board of directors - the grant date is usually when that approval has been obtained. To achieve grant date, the arrangement must also be communicated to employees.

A broad-based unilateral grant for a share-based payment is not always approved by the board. Often, employees in Dubai and UAE are informed of the terms and conditions of the award after they have been approved by the board. Some UAE entities communicate the terms and conditions to employees by their direct supervisors. Due to the different schedules of employees, employers, and employees, it is possible for different employees to be informed about their awards at different times.

Sometimes communication can span several days or even weeks due to the geographical dispersion and number of employees. Therefore, an award approved at one board meeting could be subject to multiple grant dates.

However, a single grant date is not sufficient to value share-based payments transactions that were granted on roughly the same date. This could lead to a material deviation from the aggregate fair values that would otherwise have been determined at the individual awards' grant dates.

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Understanding Of "Shared Understanding"

The finalization of all terms may not be necessary for a shared understanding. An offer might not include the exercise price but may instead state the formula for financial audit’s determining of the exercise price.

If the outcome is based upon objective factors and different knowledgeable persons, independent of each other, can make consistent calculations, then there will be a shared understanding, even though the grant terms have not been specified.

If the exercise price is determined based on a market price at a later date, but all other factors are known, there will be a mutual understanding at the time of the agreement as to how the UAE companies determine the price.

If the exercise price is determined based on a market price at a later date, but all other factors are known, there will be a mutual understanding at the time of the agreement as to how the price will be determined.

Discrimination Clauses

Some share-based arrangements allow a remuneration commission (or equivalent body) to modify the terms of awards with different degrees of discretion. It is important for audit firms in Dubai and other preparers of financial statements to evaluate the effect of a discretion clause in a share-based arrangement.

On the determination of the grant date for the share-based payment;

If discretion is exercised following the grant date, should audit services in UAE apply modification accounting?

If the terms of a share-based payment arrangement allow the remuneration board to modify the terms of an award at their discretion, then the determination of whether there is a shared understanding should be made based on the degree of subjectivity. In Other Words,  the remuneration board has the discretion to make changes and the factors that the committee can control.

That is all you need to know about the grant date as guided by IFRS 2. If you wish to learn more about IFRS 2 and its applications, visit the blog section in our website to discover more.

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Ervee is a CPA with international experience in Tax and Accounting. He has over 12 years of experience in accounting and bookkeeping and over a year in VAT implementation, registration, and accounting in UAE. He regularly drives out inefficiencies in company operations and loves the challenge of helping clients find additional ways for an easier and improved compliance and verification of transactions.