ACCA Strategic Professional · Strategic Business Reporting (International) · Professional and ethical behaviour in corporate reporting
Dalton Co, a parent, is under pressure from lenders to show gearing below a covenant limit. The group accountant proposes classifying a subsidiary's loan as part of a disposal group held for sale although no plan to sell has been approved by management. What is the most appropriate response from a professional accountant?
The accountant should refuse the classification and escalate internally if pressured. IFRS 5 requires a committed sale plan and a highly probable sale, which are absent, so classifying the loan as held for sale to meet a covenant would be misleading and breach integrity and objectivity.
- AComply, since classification is a presentation matter with no ethical impact
- BComply but disclose the covenant pressure in the directors' report
- CRefuse the classification because IFRS 5 criteria are not met, and escalate internally if pressure continues, as complying would breach integrity and objectivityCorrect
- DComply only for the interim period and reverse at the year end
Explanation
IFRS 5 requires management to be committed to a sale plan and the asset to be available and highly probable to sell. Without an approved plan, the classification would be misleading and driven by self-interest pressure. The accountant should refuse and use internal escalation, not rely on disclosure or temporary use.
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