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ACCA Strategic Professional · Strategic Business Reporting (International) · Fair value measurement

Vega plc's finance director asks the group accountant to value an unquoted equity investment at a level that avoids a loss, by using an unobservable growth rate well above any market evidence, and to describe the measurement as Level 2 in the notes. Which response is most consistent with IFRS 13 and the ACCA ethical requirements?

The accountant should refuse the unsupported growth rate, use market participant assumptions, classify the measurement as Level 3 because of significant unobservable inputs, and escalate if pressured. Biased inputs breach IFRS 13 and the ethical principles of integrity and objectivity.

  1. AComply, because unobservable inputs are permitted so long as they are management's best estimate
  2. BComply with the valuation but disclose it as Level 3 to satisfy IFRS 13
  3. CRefuse to use inputs not supported by market participant assumptions and classify the measurement as Level 3, escalating the matter if pressure continuesCorrect
  4. DUse the higher growth rate but exclude the quantitative information about unobservable inputs from the notes

Explanation

IFRS 13 requires inputs to reflect market participant assumptions, not management's preferences, and a measurement based on significant unobservable inputs is Level 3. Using an unsupported growth rate breaches the objectivity and integrity principles of the ACCA ethical code. The accountant should refuse, apply supportable inputs, disclose correctly and escalate if pressure persists.

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