Does a modification increase or decrease the value of an award?
On 1 January 2012 an entity granted two executives, A and B, a number of options worth $100 each.
On 1 January 2013, A’s options are modified such that they have a fair value of $85, their current fair value being $80. This is treated as an increase in fair value of $5 (even though the modified award is worth less than the original award when first granted). Therefore an additional $5 of expense would be recognised in respect of A’s options.
On 1 January 2014, B’s options are modified such that they have a fair value of $120, their current fair value being $125. This is treated as a reduction in fair value of $5 (even though the modified award is worth more than the original award when first granted). There is no change to the expense recognised for B’s options.
This treatment ensures that movements in the fair value of the original award are not reflected in the entity’s profit or loss, consistent with the treatment of other equity instruments under IFRS.
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