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Guidance Note on Accounting for Share-based Payments

(The following is the text of the Guidance Note on Accounting for Share-based Payments, issued by the Institute of Chartered Accountants of India.

This Guidance Note is applicable for enterprises that are not required to follow Indian Accounting Standards. Pursuant to the issuance of this, “Guidance Note on Accounting for Employee Share-based Payments” stands withdrawn)


1. In a number of countries, shares and share options comprise a significant element of the total remuneration package of senior personnel; a trend encouraged by the current consensus that it is a matter of good corporate governance to promote significant long-term shareholdings by senior management, so as to align their economic interests with those of shareholders. Such plans generally take the forms of Employee Stock Option Plans (ESOPs), Employee Stock Purchase Plans (ESPPs) and Stock Appreciation Rights (SARs). ESOPs are plans under which an enterprise grants options for a specified period to its employees to purchase its shares at a fixed or determinable price. ESPPs are plans under which the enterprise grants rights to its employees to purchase its shares at a stated fair value at the time of public issue or otherwise (such ESPPs are outside the scope of share-based payment plan under this Guidance Note). One advantage of ESOPs and ESPPs as remuneration is that they need not entail any cash cost to the enterprise. SARs is a form of employee share-based payments whereby the employees become entitled to a future cash payment or shares based on the increase in the price of the shares from a specified level over a specified period. Apart from using share-based payments to compensate employees for their services, such payments are also used by an employer as an incentive to the employees to remain in its employment and to reward them for their efforts in improving its performance. Unlisted companies, in particular, start-up companies, often give share-based compensation since they cannot afford to pay high salaries to their employees but are willing to share the future prosperity of the company. Several companies also offer Guidance Note on Accounting for Share-based Payments share-based payments to non-employees, including various vendors. It is hence important that cost relating to these recognised in the financial statements.

2. Recognising the need for establishing uniform accounting principles and practices for all types of share-based payments, the Institute has issued a Guidance note on Accounting for Employee Share-based Payments in 2005. Considering that share based payments to vendors is on the rise, the Guidance note on Accounting for Employee Share-based Payments has been replaced by this Guidance Note. Once the Accounting Standard dealing with Share- based Payments comes into force, this Guidance Note will automatically stand withdrawn.

This Guidance Note is applicable to companies following Accounting Standards under Companies (Accounting Standards) Rules, 2006, as amended under Section 133 of Companies Act, 2013. Companies following Companies (Indian Accounting Standards) Rules, 2015, as amended, shall continue to follow Ind AS 102 - Accounting for Share Based Payments. 

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