Introduction

In this article, I will be discussing the concept of grant date and how it pertains to share-based payments. I will also touch on some common pitfalls and the interaction between AASB 2 and ASX Listing Rules.

 

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What is 'grant date?'

AASB 2 (Appendix A, pg19) defines grant date as:

 

'The date at which the entity and another party (including an employee) agree to a share-based payment arrangement, being when the entity and the counterparty have a shared understanding of the terms and conditions of the arrangement. At grant date the entity confers on the counterparty the right to cash, other assets, or equity instruments of the entity, provided the specified vesting conditions, if any, are met. If that agreement is subject to an approval process (for example, by shareholders), grant date is the date when that approval is obtained.'​​​​

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Although the exact application of grant date depends on the type of share-based payments being offered and their specific conditions, a two-step process can be used:

- the date an agreement was signed off by relevant parties, announced to the market or otherwise agreed upon;

- shareholder/board/other forms of approval

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If shareholder approval is required for the issue of securities, for example performance rights, it is usually quite obvious as to the date. For instance, a notice of meeting for a listed entity must include any resolutions that are to be voted on by shareholders (LR 14.1.) Under this LR, shareholders must be informed, among other things, the consequences of a failed resolution, such as  shares not being issued. For shared understanding, one could look to a contract that has been signed off by both parties as this is evidence that both parties are in agreement of the terms and conditions.

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Why is grant date important?

Grant date is an important concept for share-based payments because it determines equity instruments are valued. Under AASB 2, equity instruments are to be measured at fair value at grant date (p11.) For common equity instruments such as options with a service component, the grant date will determine our inputs for the Black-Scholes option pricing model, including:

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 - the date of the share price to be used

 - the date of the risk-free rate, such as government bonds, to be used

 - the starting point for historic volatility to be calculated

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As accountants, if we misjudge the grant date, it could have a very material impact on the overall valuation of the share-based payment. In complex models, such as Monte Carlo simulations with a large number of calculations, this could also mean additional administrative burden in terms of re-running the model. This is of particular concern in Excel which struggles with simulations that require additional computations, such as VWAP market-based performance rights. The determination of fair value is also a critical element of share-based payments application but is beyond the scope of this article.

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Considerations for shareholder approval​

The definition presented by AASB 2 above includes specific reference to an approval process. Although not specifically referenced, in many circumstances this will refer shareholder approval via resolution. For example, under listing rule 10.11, shareholder approval is required for issuances to related parties, such as directors of the company. The grant date for director options, for instance, would be based on the date of the passed resolution to issue them with said options.​

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However, one must be careful in interpreting 'approval' in the context of share-based payments. The definition states that if an agreement is subject to approval, the grant date is the date when approval is obtained. When reading this definition, it seems to me that the concept of approval relates to the issue of securities, meaning a lack of approval results in a lack of issue of securities. This appears to be in line with earlier parts of the definition, namely confering rights to the party. This makes sense in the spirit of the reading too; if an issuance demands approval, it is relatively uncertain.

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A notice of meeting may contain a resolution for approval of securities under a different listing rule, however. It is common for listed entities to include resolutions approving securities under LR 7.1 or 7.1A, which relate to placement capacity. Including a resolution under these LR have the effect of refreshing placement capacity for the entity. However, an examination of the possible results of the resolution, as required in notices of meetings under LR 14.1, may advise that the securities would be issued REGARDLESS of the result. An approval process is in place for the securities, but they are not subject to approval.

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In my opinion, this would mean the approval process is not a relevant determining factor for the grant date, and should be based on the date of agreement only. According to Merriam-Webster, the phrase 'subject to' means either a thing is affected by another thing, or is dependent on the other thing to happen or be true. Clearly the second definition is not relevant, as shares will be issued regardless. Under the first definition, it can also be argued that the agreement will not be affected.

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Measurement

There is potential for the start of performance obligations for share-based payments to be misaligned with the correct grant date. Consider a scenario in which a director has non-market performance rights and the vesting period has been determined to start at 1 January 2025. However, these performance rights are subject to shareholder approval and the next general meeting will be held in February 2025. As such, grant date will be in February 2025, assuming approval has been received.

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AASB 2 offers guidance on this. Under IG4, the entity must recognise services when received. As such, we are required to estimate the fair value of the equity instruments and include this in the entity's accounts. We are then required to revise this when the resolution passes or fails.

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​Koldun Consulting has experience in both AASB and ASX LR advisory, including in relation to share-based payments. If you are a director of a firm and require assistance with grant date considerations, or are an accountant looking for practical examples and interpretations, please feel free to reach out to us at koldunconsulting@protonmail.com.

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