Skip to content

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

Dalvik plc reports an MPM 'adjusted operating profit' of $95 million in its results announcement, which is $20 million higher than IFRS operating profit of $75 million because it adds back $20 million of recurring customer-acquisition costs described as 'one-off'. The finance director is a member of ACCA. Which conclusion is most consistent with IFRS 18 and professional ethics?

The measure is potentially misleading because recurring customer-acquisition costs are labelled one-off, so the director should challenge it. IFRS 18 permits MPMs but requires them to be faithfully described and not more prominent than specified subtotals. A reconciliation alone does not remedy misleading labelling, and there is no 25% threshold.

  1. AThe measure may mislead users because recurring costs are labelled as non-recurring; the director should challenge the labelling, and IFRS 18 requires that an MPM not be presented with more prominence than specified subtotalsCorrect
  2. BThe measure is acceptable as long as the reconciliation is in the annual report, so labelling is irrelevant
  3. CThe measure is acceptable because only items exceeding 25% of operating profit must be excluded
  4. DThe measure must be deleted because IFRS 18 prohibits any MPM

Explanation

IFRS 18 requires MPMs to be clearly described, not misleading, and not given greater prominence than specified subtotals. Describing recurring costs as one-off misrepresents faithfully, raising an integrity concern under the ACCA Code (objectivity and professional behaviour). IFRS 18 does not prohibit MPMs (D) and has no 25% threshold (C). A reconciliation does not cure misleading labelling (B).

Did you get it right without looking?

One question tells you little. A timed set on Discussion of issues in financial reporting shows your real accuracy, how long you take and where you lose marks.

Practise Discussion of issues in financial reportingFree diagnostic mock

More Discussion of issues in financial reporting questions