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Financial Reporting: IFRS 2
Financial Reporting: IFRS 2

Calculate auditable share-based payment expenses according to IFRS 2 standards

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Written by Support Team
Updated over a week ago

You can find Ledgy's IFRS 2 report under Reporting > Financial > IFRS 2

Understanding the report

The IFRS 2 report uses the underlying grant, vesting, and valuation data entered into Ledgy to calculate an expense per vesting tranche of a grant. These tranche values are aggregated at the grant, entity, and/or company level to reach a total expense per period.

Expenses are calculated by determining a cumulative expense for each opening and closing balance date:

Cumulative expense as of closing balance (CB) date - Cumulative expense as of opening balance (OB) date = current period expense

Ledgy automatically calculates the fair value per grant based on valuation parameters specified by you (and can be overridden if necessary). The fair value is then multiplied by the amortized vesting quantity to get the cumulative expense per period.

Valuation transactions

Fair market value (share price), volatility, and risk-free rate are valuation parameters required to run Black Scholes and determine a fair value Ledgy. These inputs are added by creating a "fair value" valuation transaction.

To add a valuation transaction for financial reporting:

  1. Go to the Transactions page, click on "+ Add Transaction" and select "Valuation".

  2. Choose the Fair value valuation type and enter the relevant valuation parameters.

Grants use the latest valuation as of the measurement date, e.g. an equity-settled grant use valuation parameters dated on or before the grant date. Fair value transactions only affect the IFRS 2 report and not the cap table or stakeholder dashboards.

Report selection

Ledgy currently offers two accounting standards:

  1. IFRS 2 (global)

  2. ASC 718 (USA)

Once you've selected IFRS 2, there are several sub-reports to choose from:

  • Expensing - Expense calculations in aggregate and per grant/tranche.

  • Disclosures - Supporting information for your financial statements.

  • Deferred tax assets (DTA) - Calculations for tax liability stemming from share-based payment expenses.

The expensing report is further separated into multiple “views” (different tabs in the exported spreadsheet) that show the building blocks for calculating the expenses.

  • Summary: this view shows the cumulative expense as of the opening balance (Expense OB), closing balance (Expense CB), and for the current period (Expense period).

  • Detailed: this view is an audit-friendly breakdown of the calculations per award vesting tranche. It includes grant transaction data, fair value inputs and outputs, outstanding quantities, amortization method, forfeiture rates, and the resulting expense.

As with other Ledgy grids, you can create your own custom views by adding or removing columns and grouping the values by whichever field you desire. Just click "Create new view" then "Edit view" to make changes.

Accounting settings

You can adjust your accounting settings from the IFRS 2 report page. Any saved changes take effect immediately.

Financial year start date

The default financial year start date is the 1st of January. However, if your financial year starts on another date you can change it here.

Reporting interval

You can choose between a yearly, semester (half year), quarterly, or monthly reporting intervals depending on how frequently you book expenses.

Amortization methods

Ledgy offers two amortization methods: front-loaded and linear. These are applied per grant based on the vesting schedule:

  • Front-loaded (also known as “accelerated”) allocates each tranche across all periods before the vesting date, based on the number of vesting days in each period. This results in more expense being recognized earlier in the grant’s service period. This is the standard approach under IFRS 2.

  • Linear (also known as “straight-line”) allocates each tranche from the vest date of the previous tranche to the vest date of the current tranche. This results in expenses that are evenly distributed across the periods. Thus approach is more common under US GAAP and is only available in the ASC 718 report.

Forfeiture rate

See the forfeiture rate section for more information on forfeiture rates.

Valuation method

See the fair value section for more information on valuations.

Equity vs. cash settlement

Ledgy considers whether a grant is equity or cash-settled when calculating expenses. Equity-settled grants are valued once on the grant date, based on the latest valuation parameters as of the grant date. Cash-settled grants are “marked to market” meaning they are re-valued every period, using the latest valuation parameters on the last day of the period.

Because mark-to-market awards are re-valued every period, this means the expense can keep changing even after vesting has completed. Only once the award is settled (e.g. paid out) is compensation finalized and further expensing ceases. Ledgy automatically handles this based on the valuation parameters you add to the platform.

Below are the default settlement approaches per grant type in Ledgy:

  • Stock options: equity-settled

  • Warrants: equity-settled

  • RSUs: equity-settled

  • Phantom shares: cash-settled

Fair value

For both equity and cash-settled transactions, IFRS 2 states that entities should measure awards at their fair value. Ledgy offers three valuation methods for calculating the fair value of a grant:

  1. Black Scholes

  2. Monte Carlo

  3. Intrinsic value (RSU only)

These valuation methods are run at the grant level, not the vesting tranche level.

Black Scholes

Black Scholes is an option pricing formula that takes several assumptions and estimates a terminal value for an option. It is a commonly used pricing model in the financial industry due to its simplicity and is generally accepted when it comes to share-based payment expensing. The valuation parameters are:

  • Expected term

  • Strike price (or exercise price)

  • Fair market value (per share)

  • Volatility of the stock

  • Risk-free interest rate

  • Dividend yield

The following sections provide more detail on the assumptions used in this model.

Expected term

The expected term is the length of time the grant is expected to be outstanding before it is exercised or forfeited. Typically measured in years, it is derived from the grant date, expiry date, and vesting schedule. Ledgy automatically calculates the expected term at the grant level based on this information. If a grant does not have an expiry date, expected term cannot be calculated and no fair value will be determined.

For mark-to-market grants, expected term is calculated from the measurement date.

Strike price

The strike price (or exercise price) is the price an option holder must pay to exercise the option, or convert it into an actual share. This is specified on the grant. If a grant is missing a strike price, calculating fair value using Black Scholes is not possible and the expense will be blank.

Fair market value (share price)

The fair market value is the most recent share price associated with the awards. For listed companies, this would be the public market price. For private companies that do not have a live market price, the share price is usually agreed via financing rounds or local tax authorities (e.g. an HMRC or 409A valuation). In Ledgy, you specify the fair market value by creating "fair value” valuation transactions. Grants use the latest share price as of the measurement date (e.g. the grant date for equity-settled awards). If no share price can be found the expense will be blank.


Volatility is a statistical measure of how much a stock price fluctuates over a period of time. For Black Scholes, expected volatility is estimated based on historical volatility, however, private companies without historical data often use a publicly traded peer group to determine a reasonable volatility.

In Ledgy, users can directly enter volatility rates against specific dates. Fair value calculations will use the latest volatility entered as of the valuation date. You must determine this rate on your own, and should retain supporting documentation that explains how the rate was chosen.

Risk-free interest rate

The risk-free rate is the hypothetical return on an investment with no risk, often benchmarked to government bonds where the risk of default is negligible.

In Ledgy, users can directly enter risk-free rates against specific dates. Fair value calculations will use the latest risk-free rate entered as of the valuation date. You must determine this rate on your own, and should retain supporting documentation that explains how the rate was chosen.

Dividend yield

Ledgy assumes the dividend yield is 0.

Monte Carlo

Ledgy also offers Monte Carlo as an alternative to Black Scholes. It is a stochastic (random sampling of inputs) method that simulates many possible scenarios and estimates a result. Ledgy’s implementation of Monte Carlo takes the average of 1 million approximations to calculate an expected value. Please note this is more computationally intensive than Black-Scholes.

Intrinsic value

This valuation method simply uses the fair market value share price to calculate the expense (Ledgy assumes awards are issued at zero cost to the stakeholder). It only applies to restricted shares and will automatically be used for RSUs in Ledgy. These awards cannot be valued using methods like Black Scholes because there is no expiry date and therefore no expected term.


When an employee leaves a company or is otherwise terminated, expenses need to be adjusted to reflect any terminated unvested shares. Expenses are not adjusted for terminations of vested shares since vested shares are considered compensated under IFRS 2.

When part of a grant is terminated in Ledgy, the expense is reduced by the terminated amount. The reduction is applied to the period in which the termination takes place and any future periods, so past expenses are unaffected. This can result in a negative expense when expenses are front-loaded, which is perfectly fine. If a forfeiture rate is being used, any estimated forfeitures will be “trued up” in the period of the termination so that the total expense reflects the actual number of vested shares.

Forfeiture rate

The forfeiture rate is an estimate of what percentage of awards will fail to vest, usually because an employee leaves the company. Applying a forfeiture rate will reduce the expense. If you choose to use one, the rate should be carefully selected by analyzing historical forfeiture data as well as expectations for the future. If expectations change, the rate should be updated. Ledgy does not suggest a rate based on historical data but you can use the historical forfeiture report to evaluate your historical data in Ledgy. You should save all supporting calculations to justify your chosen rate in an audit.

Two forfeiture methods are offered:

  • Static simply reduces each expense by the percentage specified. Any discrepancies with the actual vested amount (once a grant fully vests or is terminated) are automatically trued up.

  • Dynamic is a more sophisticated approach considered best practice. The rate is applied at the tranche level and is automatically adjusted based on the amount of time left to vest, relative to the reporting period date. The result is a smoother and more accurate estimation of forfeitures that naturally trues up as vesting progresses.

If you don't want to use a forfeiture rate simply set the value to 0%.

To vary forfeiture rates by period and/or department, use custom accounting.

Custom accounting

Custom accounting allows you to override certain values for target groups of grants. Specifically, you can:

  • Override fair values and/or valuation parameters

  • Set forfeiture rates per department and/or vary them by reporting period

  • Set a tax rate for use in the DTA report

You might use this if you have fair values calculated outside of Ledgy, or have historical expenses that need to be reflected in Ledgy.

How it works


  1. Download the Excel template

  2. Fill out the template specifying the targeting criteria, override values, and measurement date

  3. Upload the template and the values will be reflected in-app in a grid

  4. Values will also be reflected in the relevant columns of the expensing report

Excel template logic:

Measurement date - effective date from which the value should be applied

  • Override value is applied to opening/closing balances on or after the measurement date until a new measurement date with the same target applied

Targeting columns - determine which grants will be affected (you can use any combination, if none are specified the value will apply to all grants)

  • Stakeholder group

  • Grant date

  • Grant ID (the 17-character string, e.g. A9TAe4ameNNMgthGZ, not the Grant #)

  • Plan name

  • Department

Override values - values applied to the target group

  • Strike price

  • Expected term

  • Forfeiture rate

  • Fair value

  • Share price

  • Risk free rate

  • Tax rate

If rows are in conflict with one another the bottom-most row takes precedence. Please be careful to not delete any lines in the bulk edit template.

Successfully uploaded values will be displayed in-app. In the “Detailed” view, grants that have an overridden valuation used in the IFRS 2 report will have a “Valuation method” = “User input”.

Other considerations

Vesting start before the grant date

Expenses are only recognized from the grant date, so any vesting before the grant date will be accumulated and expensed on the grant date.

Performance conditions

For grants with performance conditions, IFRS 2 states that companies should estimate the vesting duration based on when the condition is likely to be satisfied. On Ledgy, the target date of a performance vesting milestone can be used for this purpose. Grants with performance vesting will use the target date as the tranche vest date when calculating expenses. However, if a target date is later adjusted this will affect expense calculations for all periods (including past periods) and therefore requires manual review by the user to ensure correctness. For more information on performance vesting conditions, check out this article.

Ledgy does not yet support complex multi-trigger vesting conditions.

Vesting pauses

If a vesting pause is added to a grant, this will affect the tranche vest dates and therefore change the expenses in Ledgy (including past periods). Users should carefully review grants with vesting pauses for correctness.


If expenses are blank, this is usually because the grant is missing values necessary to the (Black Scholes) valuation model. Please double check the following are present:

  • Expected term

  • Strike price (or exercise price)

  • Fair market value (per share)

  • Volatility of the stock

  • Risk-free interest rate

  • Dividend yield

Migrating historical expenses to Ledgy

If you need to represent historical expenses prior to using Ledgy, custom accounting can help accomplish this.

Other reports

Ledgy offers additional reports related to expensing that can be useful.


See the disclosures help article. (coming soon)

Journal Entries

See the journal entries help article. (coming soon)

Deferred Tax Assets (DTA)

See the deferred tax assets help article. (coming soon)


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