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

Delta Co's finance director is asked by the CEO to reduce the fair value of the SAR liability by assuming an unrealistically low share price volatility, so that profit targets that trigger the CEO's own bonus are met. The assumption is not supported by market data. Which is the most appropriate course of action for the finance director, a professional accountant?

The finance director should refuse to use the unsupported volatility, apply a supportable market-based estimate as IFRS 2 requires, and escalate to the audit committee if pressure continues. Integrity and objectivity cannot be compromised, and disclosure does not make a knowingly biased estimate acceptable.

  1. AComply, as valuation assumptions are management's judgement
  2. BUse the lower volatility but disclose it as a key assumption in the notes only
  3. CRefuse to use unsupported assumptions, apply a supportable estimate in line with IFRS 2, and escalate to the audit committee if pressure persistsCorrect
  4. DResign immediately without raising the matter with anyone

Explanation

The accountant's fundamental principles of integrity and objectivity prevent biasing estimates under pressure. The liability must reflect supportable fair value inputs. Disclosure does not cure a known misstatement, and the matter should be escalated through governance channels such as the audit committee before considering resignation.

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