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

Gamma Co's finance director proposes to reduce the number of leavers assumed in the year-end share option expense calculation, even though staff turnover has recently risen sharply, so that the profit target for a bonus is met. Which statement is most appropriate under IFRS 2 and professional ethics?

The leaver estimate must be based on the best available information, including the recent rise in turnover. Lowering it to meet a bonus target would be biased reporting and would breach integrity and objectivity, so the accountant should refuse and escalate if needed.

  1. AThe estimate must reflect the best available information; adjusting it to hit a bonus target would breach objectivity and integrityCorrect
  2. BThe estimate is a management judgement, so any figure is acceptable if disclosed
  3. CThe estimate should be fixed at grant date and not revised for actual leavers
  4. DThe estimate may be changed only when the options are exercised

Explanation

IFRS 2 requires the number of options expected to vest to be estimated and revised using the best information available. Manipulating it for a bonus target conflicts with the fundamental principles of integrity and objectivity. Disclosure does not make an unsupported estimate acceptable.

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