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Valuation Issues

You believe that the market has changed so much that valuation of the underlying asset cannot be based on past performance. The ability to price to market has been disqualified. The market is not normal. You propose a new, different method. Your model will lead to a higher valuation of the derivative investment. Your supervisor has told you, in no uncertain manner, that to disobey him will lead to future probation.

- Do you believe that you should listen to your supervisor? Why, or why not?
- What rules and regulations would guide the actions that you would take?
- What actions would you take, and why?

Solution Preview

Step 1
From the deontological ethical perspective, it is your duty to report assets at their fair value. If you follow the ethical stand-point and report the valuation of the derivative properly, the net income of the firm will increase. Your action will disclose the correct income to the stakeholders. If you decide to act in an ethical manner you should use your model and report the correct value of the derivative investment.

Step 2
The rules that apply to the valuation of derivative investment is based on Statement No. 133 of the Financial Accounting Standards Board. ...

Solution Summary

Valuation is discussed step-by-step in this solution. The response also has the sources used.