Real Options for IFRS-S1 and S2 2024 Mandatory Disclosures: An Alternative Approach to Capital Budgeting Valuation

The arrival of new accounting standards has transformed companies' financial opera-tions by creating regulatory uncertainty that affects more than just compliance. The constant change in standards makes valuation models inadequate to capture the dy-namic risk environment. Companies need models that are agile and flexible in uncertain scenarios and thereby generate shareholder value. This paper introduces a valuation model based on the real options model that complements the existing ones that com-panies use, but fails to capture the risk created by new regulations accurately. The model incorporates modified variables that can capture the dynamic scenarios with flexibility that the managers need because of the new sustainability regulations. Through a theo-retical foundation, the authors demonstrate why the modified real options model is the best tool that helps the internal practices around investment decisions under scenarios of uncertainty. Because of the confidential nature of valuation models used in compa-nies, validating the research is complex. The study is the groundwork for future research that will use the model in real environments of changing financial regulations.