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ACCA Strategic Professional · Strategic Business Reporting (International) · Discussion of issues in financial reporting

A group's finance team knows an Exposure Draft would, if finalised, reduce the group's reported liabilities. The CFO instructs the team to apply the draft in the consolidated statements to meet a covenant. What is the best response from a professional accountant?

The accountant should refuse, because an Exposure Draft is not IFRS and applying it would make the financial statements non-compliant and potentially misleading. Doing so to meet a covenant also threatens the ethical principle of integrity, so the matter should be escalated.

  1. ARefuse, since applying an unissued proposal breaches IFRS compliance and the fundamental principle of professional competence and due care and integrityCorrect
  2. BComply, as the draft is the IASB's latest thinking
  3. CApply the draft only in the parent's separate statements
  4. DComply but describe it as a change in estimate under IAS 8

Explanation

Applying an Exposure Draft is not compliant with IFRS, so the statements could not claim IFRS compliance. Doing so to meet a covenant also raises integrity concerns. Labelling it a change in estimate would be misleading, and using it in separate statements does not solve the breach.

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