ACCA Strategic Business Reporting (SBR) Practice Exam

What are vesting conditions in the context of share-based payments?

1. Conditions that are related only to price factors

2. Conditions that must be met for shares to be issued

3. General market trends affecting share prices

4. Automatic share issuance regardless of performance

The correct answer is: Conditions that must be met for shares to be issued

Vesting conditions in the context of share-based payments refer to specific criteria that must be fulfilled before an employee or recipient can gain full rights to the shares granted under a share-based payment arrangement. These conditions typically involve either service-related requirements (such as working for the company for a certain period) or performance-related requirements (such as achieving specific financial targets). The purpose of these conditions is to align the interests of employees with those of shareholders, encouraging long-term commitment and performance. The concept of vesting ensures that shares are not simply given away but rather earned through meeting predetermined company or individual performance objectives or remaining with the company for a set time duration. Therefore, in this framework, the correct option accurately captures the essence of vesting conditions, which are indeed the criteria that need to be satisfied before shares can be issued to the recipient.