BC365 When considering a possible revision of the definition of service condition, the Board observed that in IFRS 2 there is no specific guidance on how to account for a share-based payment award when the entity terminates an employee’s employment.

BC366 The Board noted, however, that paragraph 19 of this Standard regards the employee’s failure to complete a specified service period as a failure to satisfy a service condition. In the ED the Board proposed to clarify within the definition of service condition that if the employee fails to complete a specified service period, the employee thereby fails to satisfy a service condition, regardless of the reason for that failure. The Board also noted that the accounting consequence is that the compensation expense would be reversed if an employee fails to complete a specified service period.

BC367 Some respondents to the ED thought that more clarity could be provided in the proposed guidance. This is because they noted that in some circumstances in which an employee is unable to perform the service condition by completing the stipulated service period (such as when the employee is ill or dies in service), it would normally be expected that part of the award would vest and that the related compensation expense should not be reversed. They noted that, to the extent that a portion of the award vests, that portion should be recognised as an expense.