ACCA Strategic Professional · Strategic Business Reporting (International) · Professional and ethical behaviour in corporate reporting
A professional accountant in business discovers that her employer's draft annual report presents a non-GAAP 'adjusted profit' measure that excludes recurring operating costs and is shown more prominently than IFRS profit, without reconciliation. Which action is most consistent with the ethical and reporting requirements?
The accountant should press for the adjusted measure to be clearly defined, reconciled to IFRS profit and shown with no greater prominence, escalating if management refuses. Such measures are allowed if not misleading, but excluding recurring costs without reconciliation misleads users and breaches integrity.
- AAccept it, since non-GAAP measures are outside IFRS and cannot be challenged
- BRemove all non-GAAP measures regardless of their usefulness
- CPress for the measure to be defined, reconciled to IFRS profit, and given no greater prominence, and escalate if management refusesCorrect
- DResign immediately without raising the matter internally
Explanation
Alternative performance measures can be useful, but they must not be misleading: they should be clearly defined, reconciled to IFRS figures and not given undue prominence, and excluding recurring costs is misleading. The accountant should first seek correction and escalate internally. Removing all measures or resigning at once is disproportionate.
Did you get it right without looking?
One question tells you little. A timed set on Professional and ethical behaviour in corporate reporting shows your real accuracy, how long you take and where you lose marks.
More Professional and ethical behaviour in corporate reporting questions
- Marlow Co has a policy of making large provisions in years of high profit and releasing them in years of low profit, so that reported profit…
- Vantor Co's accountant discovers that the finance director has used an unsupported 12% growth assumption in an impairment test, which avoids…
- Tomas is the group financial controller of Bexley Co. He is asked to review a complex hedge accounting treatment under IFRS 9, an area where…
- A professional accountant in business concludes that no safeguards can reduce an identified threat to an acceptable level. What should the a…
- Nadia, an ACCA member preparing the financial statements of Fenwick Co, finds that the board has chosen an aggressive but technically arguab…
- Which of the following is a safeguard created by the profession, legislation or regulation, rather than by the employing organisation?