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ACCA Strategic Professional · Strategic Business Reporting (International) · Share-based payment

Dax Co's finance director proposes to avoid recognising any liability for a cash-settled SAR scheme during the year because the share price may fall before settlement and the amount is uncertain. Which response is most appropriate under IFRS 2 and professional ethics?

The proposal should be rejected. IFRS 2 requires a liability measured at fair value as services are received, remeasured at each reporting date, so uncertainty affects measurement rather than recognition. Omitting it overstates profit and breaches the accountant's duty of integrity.

  1. AAccept, because uncertain amounts are recognised only on settlement
  2. BAccept, but disclose the scheme as a contingent liability
  3. CReject, because the liability must be estimated at fair value each reporting date, and omitting it would misstate profit and breach integrityCorrect
  4. DReject, but recognise the cost directly in equity to avoid affecting profit

Explanation

IFRS 2 requires the services received and the liability to be recognised as services are rendered, measured at fair value and remeasured each period. Uncertainty affects measurement, not recognition. Omitting the cost would overstate profit and conflict with the ethical principles of integrity and professional competence.

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