ACCA Strategic Professional · Strategic Business Reporting (International) · Analysis and interpretation of financial and non-financial information and measurement of performance
A listed entity's finance director proposes changing the estimated useful life of plant from 5 to 8 years just before the year end, solely to meet a profit target linked to her bonus. No new evidence on asset lives exists. Which statement is correct under IFRS Accounting Standards and ethical principles?
The change is not justified. Useful life estimates must reflect the best available evidence, and altering them without evidence only to reach a bonus target is earnings management, undermining faithful representation and the accountant's duty of integrity and objectivity.
- AThe change is acceptable because useful life is an estimate, applied prospectively
- BThe change must be applied retrospectively with restated comparatives
- CThe change is not justified by evidence, so it risks being earnings management and breaches the integrity principleCorrect
- DThe change is acceptable if disclosed in the notes as a change of policy
Explanation
Useful lives must be reviewed using the best estimate of expected use. Changing them without evidence to hit a bonus target is biased and breaches integrity and objectivity. Disclosure does not make an unsupported estimate acceptable, and genuine estimate changes are prospective, not retrospective.
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