Which of the following statements is true about valuation of options under IFRS 2?
IFRS 2 prefers a closed-form model such as the Binomial model for valuing options
IFRS 2 neither prescribes nor rejects any option valuation model, but requires consideration of the facts and circumstances that could influence fair value in determining the appropriate model
IFRS 2 explicitly states that the only acceptable model for valuing options is the Black-Scholes-Merton formula
IFRS 2, which stands for Share-based Payment, does not prescribe a specific option valuation model. Therefore, the correct statement is:
IFRS 2 neither prescribes nor rejects any specific option valuation model; instead, it emphasizes the need to consider the facts and circumstances that could influence fair value in determining the appropriate model. Thus, the choice of option valuation model is left to the judgment of the entity, acknowledging that different methods may be suitable depending on the specific features of the options being valued and the data available for estimation. The Black-Scholes-Merton formula is one commonly used model, but IFRS 2 does not dictate its exclusive use.
