ACCA Applied Knowledge · Financial Accounting · The regulatory framework
A company's directors are free to choose any inventory valuation method each year, with no required disclosure of the choice. Which problem of unregulated reporting is MOST clearly illustrated?
The main problem is lack of comparability. If directors can switch inventory valuation methods freely without disclosure, users cannot compare results across years or with other entities, so profit trends and performance comparisons become unreliable and potentially misleading.
- ALack of comparability between periods and between entitiesCorrect
- BExcessive length of the financial statements
- CReduced liquidity of the company's shares
- DHigher audit fees due to standardised formats
Explanation
Free choice of methods, undisclosed, means results cannot be reliably compared year to year or with other entities. The other options are not the direct consequence of this freedom; standardised formats would not raise the issue described.
Did you get it right without looking?
One question tells you little. A timed set on The regulatory framework shows your real accuracy, how long you take and where you lose marks.
More The regulatory framework questions
- A standard includes a rule that a lease is treated as a finance lease only if the lease term is at least 75% of the asset's life. Entity X s…
- Which of the following is the primary reason why the IFRS Foundation Monitoring Board exists?
- An entity's accountant says a lease can be treated as off statement of financial position because it falls just below a numerical percentage…
- Place these stages of the IASB's due process in the correct order: (1) issue of final standard, (2) setting the agenda, (3) publication of a…
- A country has not adopted IFRS Accounting Standards, but its listed companies follow local standards. Which of the following is the most lik…
- Which of the following is the most direct reason why financial reporting by listed companies is subject to regulation?