ACCA Strategic Professional · Strategic Business Reporting (International) · Professional and ethical behaviour in corporate reporting
An accountant preparing consolidated financial statements for Zenith Group learns that the group's lenders will review covenant ratios, and the CEO suggests classifying a subsidiary's disposal-group assets as held for sale although the criteria in IFRS 5 are not met. Which response best reflects the accountant's ethical obligations?
The accountant should apply the IFRS 5 criteria properly, record the disagreement and escalate to those charged with governance if pressure continues. Misclassifying assets to help covenants breaches integrity and professional behaviour, and neither obeying the CEO nor disclosing the motive makes the misclassification acceptable.
- AFollow the CEO because the board is ultimately responsible for the financial statements
- BApply IFRS 5 criteria faithfully, document the disagreement, and escalate to those charged with governance if the pressure persistsCorrect
- CResign immediately without discussing the matter with anyone
- DClassify the assets as held for sale but disclose the covenant motivation in the notes
Explanation
Integrity and professional behaviour require compliance with the standard. The accountant should resist, document the matter and escalate internally, for example to the audit committee. Following the CEO breaches the principles, and immediate resignation is not the first step. Disclosing the motive does not cure a misclassification.
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
- Which of the following best describes why a professional accountant who raises a concern about misreporting should keep a written record of …
- Which of the following lists correctly sets out the five fundamental ethical principles in the IESBA Code of Ethics that an accountant prepa…
- Priya is the chief accountant of Corvus Co. During a bank meeting she learns of a rival's confidential takeover plans from a friend at the b…
- Amira, a professional accountant in business at Zentra plc, is pressed by the finance director to defer recognising a large impairment so th…
- Nadia, a professional accountant in business, discovers her employer is misapplying IFRS 15 in a way that materially overstates revenue. Man…
- Group accountant Wei prepares consolidation adjustments for Zenith Group. The finance director instructs her to exclude a subsidiary's large…